Bank lending plummets by $587B in 2009

[brentspeak]

Source: Washington Post

Lending by the banking industry fell by $587 billion, or 7.5 percent, in 2009, the largest annual decline since the 1940s, the Federal Deposit Insurance Corp. reported Tuesday.

FDIC Chairman Sheila Bair said that some small banks have dialed back on lending because of financial weakness, a problem the Obama administration aims to address with a proposal to pump $30 billion in new federal aid into community banks.

snip

But Bair said that the vast majority of the decline was the result of lending cutbacks by the largest banks, which have tightened qualification standards and increased the proportion of money that they hold in reserve against unexpected losses.

"Large banks do need to do a better job of stepping up to the plate here," Bair said.

Read more: http://www.washingtonpost.com/wp-dyn/content/article/2010/02/23/AR2010022302120.html

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Rewind to Jan. 17 2009: http://www.nytimes.com/2009/01/18/business/18bank.html?_r=1">Bailout Is a Windfall to Banks, if Not to Borrowers

At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.

“Make more loans?” Mr. Hope said. “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.”

Translation: 'Thanks, suckers.'

[NightWatcher]

1. you can lend to a guy who might lose his job and/or be unable to repay, OR...

you can invest the money in more bubble bullshit and then take a handout from the government without any risk at all.

Woohoo, free money. I'd like some of that game.

[villager]

2. in other words, more money taken out of the economy by the economic elites...

How much longer are we gonna put up with this shit?

[peggygirl]

3. CapitalOne raised interest rates and fees so high people just walked away

from their debt. At one time, they had very good rates and people paid their debts to them but when the interest rates and fees became ridiculous many folks just said "the hell with it!" They couldn't make a dent in what they owed so they saw no reason to even try. Why don't lenders understand this. Make it reasonable for lenders to pay their debts and most working men and women will pay. But gouge the public and they give up.

[SOS]

4. Why "accommodate" the American citizen?

They pay 1% to savers and charge 28% to credit card debtors.
They borrow at 0.75% and buy Treasury bonds that pay 3.8%.
They hide their trillions in losses by using mark-to-fantasy accounting.

They can make billions (at our expense) without bothering to "accommodate" us.

[prezpeng]

5. The have no reason

To help us

[OhioChick]

6. K&R This 'should' be front page news. n/t

[Oceansaway]

7. K&R...n/t

[crim son]

8. "Thanks, suckers."

Infuckingfuriating. I had good luck beyond my wildest dreams last year when the seller of the house I wanted to buy agreed to owner-financing... no WAY would I have been eligible for a housing loan in the current lending climate.

[liberation]

9. LOL no shit....

... banks want the government to take all the risk involved in kick starting the economy, while they are busily buying assets at fire sale prices.


Like a good known robber baron used to say: "Depressions and recessions are when assets return to their true owners: the filthy rich."


Time to evolve, I say. Just have the government print interest free money already. It won't fix everything, but it would help tremendously in directing us towards the right direction. It is funny how we held 300 million citizens hostage to the interests of health care insurers during the health care reform. And in the same fashion, we keep our current economic system simply because a few hundreds (or thousands tops) of very wealthy individuals feel entitled to profit sans having to provide an actual value proposition or real work. When you work out the percentages of a few hundred or thousands of people who truly benefit vs. 300 million people who really gain nothing from this system... it just boggles the mind.

Having to pay interest to use our very own money is one of the world's oldest rip offs. I wish more people would wise up to that "tiny" detail. When we make the means the end, we should not be surprised when we get stuck in endless feedback loops. The only reason why we have the current credit-based system, it is because at some point some assholes figured out how to make "money" by simply moving it around. Money is and should be just a tool to carry economic exchange and measure its activity. When we made the tool (money) the actual end, we subjugated ourselves to carry on with infinite growth in order to constantly having to make up the deficit between credit/interest (money literally pulled out of thin air, and following arbitrary metrics/representations) and actual physical assets/products (real "tangible" wealth). This infinite growth expectation is clearly at odds with the finite nature of our reality.


This is nuts, and it is nothing new. The Roman empire was rocked multiple times by what now would be considered "credit crises." Our whole socio/economic organizations for the better part of a few millennium are the very definition of insanity: we keep on doing the same thing, and we act surprised when we always end up getting the same result.

[hughee99]

10. Maybe I'm not understanding things right here,

but didn't making risky loans get us (in part) to where we are now? And didn't the FDIC last year seek to increase premiums significantly, which would reduce the amount of money the banks have to lend?


http://www.boston.com/news/nation/washington/articles/2009/03/11/now_needy_fdic_collected_little_in_premiums/

"Now with 25 banks having failed last year, 17 so far this year, and many more expected in the coming months, the FDIC has proposed large new premiums for banks at the very time when many can least afford to pay. The agency collected $3 billion in the fees last year and has proposed collecting up to $27 billion this year, prompting an outcry from some banks that say it will force them to raise consumer fees and curtail lending."

[brentspeak]

11. Risky sub-prime APR mortages and corresponding risky bets involving derivatives

were what caused the liquidity crisis (which, after all was said and one, was the real issue). To extend traditional housing loans to prime mortgage-eligible individuals and general loans to small businesses would not be risky; however, the banks now refuse to make those standard, less-profitable loans, preferring instead to invest the money forked-over to them by the government to make huge sums from their trading accounts. Big difference.

As for raising FDIC premiums, it hasn't happened yet, though http://www.financial-planning.com/news/ICBA-Obama-FDIC-2665663-1.html">Obama is proposing that it be done so. As the link suggests, it's the community banks who might be most affected by a premium increase; the large banks, who can easily afford the premium increase, are the ones most notably not lending. If big bank executives were so concerned about holding onto dollars to pay for anticipated FDIC premium increases, they wouldn't be http://www.marketwatch.com/story/wall-st-bonuses-climbed-17-to-203-bln-in-2009-2010-02-23?reflink=MW_news_stmp">showering themselves with Mt.Everest-sized bonuses.

[hughee99]

14. How many "mortgage eligible individuals"

are in the market for a house right now, given the economic uncertainty and the very real possibility that they might lose their jobs? And the risk of losing their jobs is a possibility because the small businesses are also struggling. You're right about the investment & trading horseshit that went on, but in a down economy, any loan becomes more risky than it would have been in a sound one. Given the uncertainty of the FDIC premiums, banks would probably find it financially wise (at least for their own bottom line) to keep more money in reserve in case the FDIC shows up with a bill in the near future.

I'm not suggesting that Obama is advocating exactly the sort of behavior that got them into the mess, but I can see where one might consider these mixed signals to some degree.

What's the incentive for the banks to lend money to regular folks (even those who are credit worthy) when they can borrow govt money for less than 1% and invest in guaranteed government securities for more than 3%. The return may be less, but it's free guaranteed money with no risk at all.

[Romulox]

13. The justification for the bankster bailouts was, in large part, to keep credit available.

That turns out to have been a bogus justification--a lie, in layman's terms.

[hughee99]

15. That was how it was sold to the people,

but I don't remember there being anything in the legislation that would make it so.

[Romulox]

12. Bailout funds that were SUPPOSED to get them lending went for compensation instead.

Why do I get the feeling that we're living through one of those times that will be eventually taught in the "not what to do" section of history books?

[girl gone mad]

16. Can't say "no one could see that coming"..

cause http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=5321337&mesg_id=5321835">I told you so.

[SoCalDem]

17. Why should they loan money to people who already owe too much money

or to people who may not have a job 6 months from now? or for people to buy a house that will be valued at less in 6 months?

they prefer to hold onto "their" money, and gamble it away on things that have government/taxpayer guarantees.

They pocket the profits and pass it around to their pals and if their bet goes sour, the tax money bails them out..

Loaning money to little people is not as profitable..

Think about it.. If you had 10K to loan out, would you loan it to your deadbeat, flat-broke brother in law so he could make payroll for a few more months in his failing business, or would you "invest" it with your golf buddy who snatches up foreclosed houses via insider-info from his banker buddies... for pennies on the dollar with govt backed mortgages?

[Wilms]

18. K&Arrrgh. n/t