Banks Not Lending Anymore? Simply Untrue 33 comments
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One of the worst parts of being a money manager is that in order to stay on top of financial news one should really have CNBC on in the office constantly. There are many people on CNBC that I thoroughly enjoy (David Faber and Erin Burnett, to name a couple), but I say this because you also have to hear a bunch of garbage that people continually spew out of their mouths.
One of the things you constantly hear nowadays is that “banks aren’t lending anymore.” Whether it is a politician who is upset about how the government’s money is being spent, or an economic doomsayer, this statement is simply untrue based on actual reported data (sorry, I’m a stickler for actual data). Depending on how strong a bank is right now, lending for the most part has either been increasing modestly, staying flat, or dropping modestly. Claiming that banks aren’t lending anymore implies that loan volumes have simply fallen off a cliff, but nobody making these accusations ever can back it up with any facts when pressed.
Take the fourth quarter earnings report from JPMorgan Chase (JPM) released yesterday. Despite an economy that shrunk during the quarter, JPM’s total consumer loans rose by 2% or $10 billion, to $483 billion, between September 30th and December 31st. This is not an aberration. As we will see (and I will add more data to this post as it comes in) most banks will show similar numbers for the latest quarter.
Given that economic growth is negative and unemployment is rising, one could easily understand if lending dropped during a recession. After all, if the core problem was lax lending standards and those standards are being revised upward, lending should be going down, not up. Evidence of increases or simply a stagnation in loan levels goes against exactly what many are claiming (that the banks are hoarding capital).
It is certainly true that someone with a FICO score of 500 or 600 (sub-prime) might not get a loan in today’s environment, but that does not mean that banks aren’t lending. Instead, it means that banks are not giving money to people who likely won’t be able to pay it back. Isn’t that exactly what we want, given that the sub-prime mortgage crisis is what got us here in the first place?
Remember, numbers don’t lie but people do. For some reason too many people seem to want to blame the banks for more than their fair share, and that is saying a lot given that these institutions don’t exactly have impressive operating track records recently.
Full Disclosure: No position in JPM at the time of writing, but positions may change at any time.
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The data is very clear that banks continue to lend. Have a look at the fed's own data in the charts compiled here:
mast-economy.blogspot....
Smarty_Pants, my read of these charts is that even the rate has not changed substantially. The trend of lending (by most banks save the failed top ten), is upward and to the right. There are so many other great, safe, solid banks out there that the fearful highlights in our headlines blinds us to the truth in the numbers. SP, I'd be very interested in your (and others') thoughts about the real numbers... these do not just represent one data point or the other, the fed compiles hundreds of these charts... Chad your assertion is right on the mark.
Overall lending continues -- and at a very healthy rate.
Again very nice piece Chad. Keep digging for the real data and be very cautious about the sensationalism that prevails on most all news channels these days -- particularly those focused on finance...
gne
The basics of fractional reserve banking are:
1. Create principal from nothing.
2. loan it out for interest
3. As loans are repaid, principal goes back to nothing.
As a consequence, if the amount of new loans is less than the repayment rate of old loans deflation is occurring.
God forbid a politician, bank, or CNBC talking head think behind the present quarter numbers!! Maybe if we got rid of all of the our country would been in far better shape.
On Jan 16 10:01 AM Sentinel wrote:
> The Banks aren't lending is true.
>
> The Banks are lending is also true.
>
> What is even TRUER is the Banks are FINALLY lending in a spirit of
> FEAR and RESTRAINT as they should have been for over a decade. <br/>
>
> However, this won't paly out well for a while at least because all
> the excess, cowboy, devil-may-care lending that has gone on must
> be worked out of the system just like someone in detox.
>
> A lot of sweating, vomiting, hallucinations, tremors, etc. The next
> few years will not be pretty.
>
> Oh,,,by the way SIX.....the fear mongering is not useless....nor
> is it driving public opinion. Businesses are shedding workers by
> the millions because come talking head on CNBC is preaching doom
> and gloom. People aren't losing their houses because of "negative
> thinking". The entire world is not in recession because of "fear-Mongering&am...
>
>
> It's simply this.....we have been promised too much, we have indebted
> ourselves personally and governmentally too much, and we have drained
> out fuel resources causing high prices too much...(the crash in fuel
> prices only being a result of the precipatous fall in demand due
> to the global recession.)
>
> It's all about fundlementals SIX...not fear. Fear is the natural
> outcome of seeing all of the last 8 years shattered and the ugly
> reality laid bare for all to see.
>
Better a quiet hour with the Financial Times.
The other thing to note is that a lot fewer people even want a loan right now especially for housing which is still plummeting in value. It's funny that when banks were acting irresponsibly that nobody cared a hoot but now that they want/need to act responsibly they are no longer "with the program" and are thus villified.
This is just another indicator that the whole economy is a complete scam. One big giant debt based Ponzi scheme. Did you really think it would last for ever?
This is proved by looking at what rates the banks are offering on their ratesheets for non-government backed products...like 2nd mortgages or, non-conforming jumbo loans. - Oh wait...many don't even offer jumbo loans (see news about Wells Fargo) and if they do offer these, it's north of 7% - 8%+.
And Erin Burnett parrots what she's told, w/o doing her homework. Do you really, still (!) believe what Wall St and your government tells you? It's mostly self-serving nonsense. -e.g The Fed Res Loan officer survey says that there's less demand for loans....get real! If you're told the bank isn't making loans, guess what, you don't go through the indignity of applying for a loan only to be turned down. - It's like the unemployment numbers...it doesn't include people who stopped looking for work, or self-empoyed people who can't earn a living and don't qualify for benefits.
Believe what you will...some people never learn.
1. Create principal from nothing." - moonbat
Long time no see MB. Keep beating the drum. More and more people are figuring it out and that's gotta be a good thing.
"The fox knows many things, but the hedgehog knows one big thing."
You comments have seemed even finer than usual. May God continue to grant you wisdom (and me too, please.) Amen
There is a guy on that channel named Joe something. Used to have his hair bushy and messy. Today it's trimmed, with a more clean cut look. The day before the DotCom crash, he looked into the camera and said sternly, "if your financial advisor does not have you in tech, you better ask him why." Wish I possessed that footage. A bunch of whores.
I'm in the tortoise camp myself. :-)
MB, the more I think about it the more the Biblical practice of debt Jubilee makes sense. My original thoughts were that it was too harsh, but it has some common sense underpinnings.
What better way to temper over aggressive lending than to let the debtors stiff the creditor every 7 years? Granted, it's rather crude, but it sure would make a difference in the way a person's character was considered whenever a loan is made.
A 'reputable' borrower would repay the loan anyway, even if not required by law and would build a bulletproof reputation, becoming "honored among men" and likely able to borrow whenever necessary (though unlikely to do so).
A less reputable party would stiff the creditor and have a very much more difficult time ever getting a loan again.
Loan terms would shorten greatly as well, which would also tend restrict the amount borrowed.
The system has its merits.
While working on that equity backed money and banking model, I was reminded of several Biblical parallels including zero percent loans between fellow Israelites. However, foreigners could be charged interest. Thus loans to companies wholly owned by a bank's money backing could be considered a "fellow Israelite". The zero interest rate in those cases make perfect sense since the money backing is in effect lending to itself.
Not really. Since the Fed started paying interest on reserves, banks have an incentive to keep reserves there that did not exist at this time last year. So the increase in depository institution reserves at the Fed cannot be taken as a 1:1 drop in lending.
If you thinks this is normal market just compare terms you could have gotten two year s ago to those now. The difference is shocking for good commercial credits