Comments on: Small Business Credit

By: stan

stan — Thu, 02 Oct 2008 14:45:46 +0000

The fact that people are maxing out their lines is evidence of the error in Warren’s previous post about govt statistics showing high loan volume. Warren tried to argue that loan volumes showed there was no problem in the credit markets. However, the maxing out of lines shows that these “loans” are not normal business. Accordingly, his argument fails.

By: Rolo Tomasi

Rolo Tomasi — Thu, 02 Oct 2008 14:11:10 +0000

Esox Lucius,

You make a very good point, which I had not considered. To the extent that businesses have lines of credit with fixed rates this problem problem is similar to the gasoline shortages. However, if ones rate is tied to the LIBOR, then their rates will go up as more credit is demanded. If the rate is tied to the Fed funds rate, the Fed will have to give out more cash to keep the rate on target. So there is price signals with LIBOR tied credit, and Fed tied credit will have no shortage.

By: Dr. T

Dr. T — Thu, 02 Oct 2008 00:10:24 +0000

You ought to talk with your local bankers before you believe Chicken Little Paulson's clucking about credit crunches. Most of the local banks, and quite a few of the national banks, have plenty of money and wish that more people and businesses were borrowing. Your actions are helping your bank, but probably are unnecessary for your business.

I believe that we are hearing very one-sided presentations about the state of the economy. Paulson, his Treasury Department employees, financial industry CEOs who bet a bundle and lost, and a few pet economists are trying to make Paulson into Economic Czar of the country and are going along with the Chicken Little clucking. The media loves to report that "the sky is falling" and hates to report "things really aren't that bad," so all we hear is financial meltdown, domino-effect bank failures, credit crunch crisis, etc. The 100-plus noted economists who said the bailout plan would cause more problems than it would fix got little media attention.

I believe we need local cooling: freeze Congress, the White House, and the Treasury Dept. until 2009. That will help prevent financial crises this year.

By: luispedro

luispedro — Wed, 01 Oct 2008 22:33:27 +0000

This might explain why we are seeing good credit growth even though some say we are in a credit crunch.

(I wrote a post about it at http://www.mutualinformation.org/2008/10/credit-crunch-credit-growth/)

By: Nobrainer

Nobrainer — Wed, 01 Oct 2008 21:56:13 +0000

From an article yesterday

"...so a company trying to get a loan from [a bank] has about as much luck as a person trying to get a mortgage -- those with clean credit histories will likely get loans, but at high rates. And those with spottier credit histories might not get loans at all."

It sounds to me like Congress wants to use the bailout to create easy credit for people with shaky credit histories as a solution to a problem of people with shaky credit histories having too much access to easy credit.

By: Esox Lucius

Esox Lucius — Wed, 01 Oct 2008 21:14:47 +0000

Rolo, I have a contract for my lines of credit, the rate won’t move for the next 3 years or the bank will be in breach. Businesses contracts are usually either fixed, or tied to libor or tied to the fed funds rate. Right now, if you are tied to the Fed, you are making out like a bandit. If to LIBOR, not so much. If you are fixed and got your lines years ago like me, you are totally set. If credit dries up, they can’t raise your rates, unless it is in your contract. So it is exactly like the gas scenario, only in the gas scenario, the government is limiting the price, in the credit scenario, the contract is limiting the price.

By: Brian

Brian — Wed, 01 Oct 2008 21:03:43 +0000

While I can understand that small businesses involved in building houses might profit from easy credit, the market is sending unmistakable signals that there are too many houses that are too expensive.

It didn't dawn on me until I read this, but thinking back to all of the various news outlets interviewing people that weren't going to be able to make payroll without a credit line, 9 out of 10 of them were construction companies.

By: Rolo Tomasi

Rolo Tomasi — Wed, 01 Oct 2008 19:53:20 +0000

There is a huge difference between the gas scenario and the credit scenario. Price controls. As more and more people “stock up” with their credit lines, the interest they are charge will go up until some decide it isn’t worth it. With gas, as is pointed out in the post, the price is not allowed to rise.