If there really were a credit crunch requiring a massive government bailout (even via an insurance scheme), it shouldn’t be the case that people could currently obtain mortgages, auto loans , and consumer loans at reasonable rates. If credit were scarce, interest rates for these loans should be really high and/or impossible to get. Neither is the case, so the claims of a crunch are false.
Just because all banks are not publicizing the number of loans they’ve turned down in the last few weeks doesn’t mean it isn’t happening. It is. All the news from the banking world is that even qualified people are having trouble getting approval. It’s not that the interest rates have to be high, it’s that the loan officers literally aren’t signing off on the loans.
People still have credit – I used my card yesterday. However, credit card offers aren’t jamming my mailbox the way they used to. Banks are not giving overnight loans, and many business start-ups across the country are finding their financing stalled.
There is a credit crunch in this country – even if not every single loan and credit transaction has been halted.
If there were a credit crunch we should be hearing about large numbers of qualified borrowers being forced to take loans at very high rates. Instead, the rates on mortgages and car loans continue to be available at rates not very different from where they have been in the last few years. And banks continue to advertise to attract borrowers. DiTech is still advertising on TV. If they didn’t have any money to lend they wouldn’t be advertising and the rate would be very high.
If banks are turning some people down, that doesn’t mean that they lack capital to loan. That means that they are finally screening borrowers for credit-worthiness. There could be a decline in qualified borrowers but still plenty of capital to lend to borrowers who are qualified. A crucnh would mean that even qualified borrowers have great difficulty finding loans.
so this whole thing is imaginary? AIG, WaMu, Lehman, all went under (or basicaly did) for the fun of it?
No, there are real and serious problems here. A number of banks, including large banks, have bad assets and may well go into bankruptcy. But there is a difference between saying that some banks are in trouble and saying that our entire financial system lacks sufficient capital and that credit is unavailable. The later claim is being made to scare people into bailing out the institutions that are in trouble.
It’s true that companies are having to pay more to borrow from each other. It’s true that Libor is at an unusually high rate. But perhaps that is the market finally properly taking into account the real risk that is involved in lending.
Despite all this turmoil the profit-motive hasn’t been abolished, there is still capital out there seeking a good return, and there are still people seeking that capital for a home, car, or small business. And the proof that there is no “collapse” is that people are still able to borrow for a home, car, or small business at reasonable rates.
One other point, Marcus. Implicit in your comment, I think, is the view that AIG, Wamu, and Lehman were healthy companies that were brought down primarily because of an irrational market panic that failed to extend credit to them. I don’t think that’s accurate. They made bad, highly leveraged bets on mortgages without sufficiently considering the risk. Their failure is market accountability for those errors.
Education has become damn expensive that only few people who planned earlier can finance it with ease. The student loan helps students reach their dream without worries of dropping out in the middle of their studies. The loan can always be paid when the student gets a job.