Reality check: There is no credit crisis.

[baldguy]

What we're seeing is a bad credit crisis. There are some - very few - banks that have made poor business decisions regarding their lending practices, because of greed & a lack of oversight, and they & their investors are suffering for it. Simply because they are large banks means nothing. How do I know this? Easy - credit cards, mortgages & personal loans are still being advertised. Banks are still accepting loan applications. You can still get cash out of an ATM & use your credit card at Target. If you would have qualified for a normal loan under normal circumstances, you would still qualify today. If your bank doesn't give you a normal loan - go to another bank. If they still don't - maybe you really shouldn't be applying for it.

30 yrs of Republican deregulation & neglect have created the current situation, and recreating a viable & healthy credit market its going to be a painful adjustment for some people. But its not the worldwide financial Apocalypse that the Bushies & neocons are painting it as - except for their cronies.

And that's a good thing.

[NMDemDist2]

1. we got a car loan two weeks ago

'course it was from our local Credit Union


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[HamdenRice]

2. Wrong

Banks won't lend to each other, even strong banks. Settlements almost ended last week. Commercial paper is drying up by $50 billion or more. T-bill rates were almost zero asian and mideast banks fled to cash and treasuries.

There is a generalized credit crisis in the business sector, which will "trickle down."

[anigbrowl]

6. Quite. Anyone who doubts this should look at the LIBOR spreads.

I'm coming to the conclusion that only about 5% of people (including in Congress and the Administration) understand what is going on and why it's a problem.

It strikes me that those who are most hostile to banks (I include myself in this from a past life) also tend to be the least informed about what the proper functions of a bank are and why we have them to begin with. They also tend to go off on rants about fiat money and fractional reserve banking, neither of which I want to give up, thank you.

I am certainly not in favor of giving the banks everything they want, or even half of that; in fact, despite the increased price tag, I actually favor letting this crisis get a little bit worse until interbank lending does actually seize and people realize that it's a systemic problem rather than a case of this or that bank being poorly run, because that seems to be the only way we'll get a proper bipartisan solution which both parties are willing to own and take responsibility for.

[Javaman]

13. I agree...

one doesn't know something is hot until one touches it.

giving the banking system and the general public a good honest frieght to clear the bullshit out from between their ears, I think would be a very healthy thing.

That will promote real oversight and regulations.

[baldguy]

7. And yet AmEx, Visa & Discover are still spending millions of dollars each day on natl ads.

As are GMAC credit, Geico, Allstate, Progressive, FreeCreditReport.com and a host of others.

The financial industry isn't on it's deathbed by any stretch of the imagination.

[anigbrowl]

8. that doesn't mean much. Car manufacturers are frantically selling their products on the TV every day

but they are most definitely in trouble, GM in particular. Even a failing business will rarely cut back on advertising because if they do it's going to kill their income stream as well as cause creditors to call in their loans.

[WA98296]

3. Reality Check: Clinton signed the bill that repealed Glass-Stegall Act which deregulated banking

[maxsolomon]

11. REALITY CHECK II:

that's a gross oversimplification of the political circumstances in which Clinton signed the bill.

[JuniperLea]

17. This is helpful...

:eyes:

[TexasObserver]

4. You are correct. I deal with bankers weekly.

The healthy banks for fine. The banks that skated on thin ice to chase endless business are not.

If this were really an emergency, the DOW would have lost 2000 points the past two weeks.

[Warpy]

5. They weren't merely bad business decisions, it was an active scam

that relied on generating as much loan paper as possible to keep the sales of CDOs going and the dirty money rolling in.

The institutions that are failing now are the institutions that snapped up all the bad paper in the hope of making a killing. They got killed, instead. They're just the first and most visible victims of grand larceny on an institutional scale.

[jobycom]

9. That's wrong. My spouse works for a "safe" bank, and they have very little to loan.

There is so much fraud and corruption to go along with the tightened money supply that even the honest banks are suffering. Bush's failure to enforce even the slim regulations in place has allowed fraud to run rampant, and the people who are defrauded the worst are the honest banks who are left holding the "good" loan when the fraud is exposed.

There are still credit cards available because mega-lenders are using credit cards to inflate their worth, hoping to get lucky and survive until better days. So many people are rotating debt from one credit card to another without paying down their debt that very little new money is being introduced. In reality, even the banks are rotating debt rather than paying it off. Bank of America went crazy offering credit card increases and advances to pay for the collapse of Countrywide, whom they had just acquired. Now they are in greater debt because of the credit cards.

In short, lenders are using loans the way consumers use them--to float money until things improve. If they don't, all could fall at once.

And that's not even covering the fact that most start-up business loans and first-time mortgages are considered questionable credit, so fewer people can afford first homes or first businesses. When new businesses don't get start-up loans, the whole economy suffers.

It's not as bad as some of the worst-case scenarios, but saying there is no credit crisis is probably a worse misstatement.

[Bonhomme Richard]

14. What businesses get start up loans without putting up collateral....

for the money?
I started my own company 8 years ago and no one was going to let me have any money unless I put up my house for the money. It didn't matter that I already had a customer base. My credit rating is in the 800's so it had nothing to do with bad credit. They would not risk their money without some way of getting it back. I understand that. I refused to do it (my wife was afraid we would lose everything but that's another subject), started small with my own savings and am doing well without the help of any bank.

[glinda]

10. IF IT IS A CRISIS THEN WHY ARE EXECS GETTING BIG PAY-OUTS????

If it is then they should cough it up to fix it. 0 Bonuses. 0 Payouts. 000000000000000000000

[Spike from MN]

12. Here's the clincher:

"If you would have qualified for a normal loan under normal circumstances, you would still qualify today."

Bingo. I was at my CU a few days ago and asked them about the credit crunch. I asked if, hypothetically, I would be able to get a loan for a new car with zero down. This was a new guy (the people I normally deal with know me and would have said "yes" on the spot) so he asked me a bunch of questions -- credit rating, employment history, etc. -- and said I would have absolutely no problem getting a loan. He said it's the people that have bad credit ratings, shaky employment history, poor payment records, etc. that will have trouble getting loans BUT they would have had trouble getting loans anyway (at least at my CU), whether it's last week, last month, last year or 5 years ago. IOW, nothing has changed.

[Spike from MN]

15. From a post in the Economy forum

David I. Levine, a professor of economics at University of California-Berkeley, says the current plan being discussed has the wrong structure.

Erik Brynjolfsson, of the Massachusetts Institute of Technology's Sloan School, said his main objection "is the breathtaking amount of unchecked discretion it gives to the Secretary of the Treasury. It is unprecedented in a modern democracy."

"I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout," said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.
Strategic Game Playing At Taxpayer Expense

Read that last paragraph above carefully. It is critical so I will repeat it "I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout," said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=114&topic_id=44138&mesg_id=44138

(Emphasis in bold is mine.) I highlighted that portion because I've been wondering the same thing. Granted, I'm a cynic and most definitely not an economic expert by any means. I'm just curious as to what others think of that quote and/or whether or not they had been thinking the same thing.

[JuniperLea]

16. It's a circular problem... they did it to themselves...

Lot's of easy loans create artificially high home prices (supply and demand)... loans adjust... people cannot afford new rate... loans default causing a glut of homes on the market (supply and demand flips)... too many houses; not enough qualified buyers... banks and investment vehicles now own homes that are valued lower than their mortgage amount... new "owners" let properties go to hell, dragging down the neighborhood value while short sales create low comps for those trying to sell their homes... now they want more of our money to even things out. Where did all the money go? Someone needs to follow it.

I don't think this is at all as complicated as they are trying to make it sound. More baffling with bullshit if you ask me.