Monday, July 28, 2008

Banks Not Lending? Blame the Shorts!

Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.

So says today’s New York Times, and they back it up with some pretty gory detail.

Drew Greenblatt, president of Marlin Steel Wire Products, figured it would be easy to get a $300,000 bank loan to finance a new robot for his factory in Baltimore. His company, which makes parts for makers of home appliances, is growing and profitable, he said. His expansion would add three new jobs to an economy hungry for work.

But when Mr. Greenblatt called the local branch of Wachovia — the same bank that had been aggressively marketing loans to him for years — he was distressed by the response.

“The exact words were, ‘We’re saying no to almost everybody,’ ” Mr. Greenblatt recalled.

Mr. Greenblatt might want to consider doing what most public company CEOs are doing these days: asking the authorities to crack down on short-sellers.

That seems to be the most common response to the continued fallout of the sub-prime mortgage debacle which—if our memory serves—was not instigated by short-sellers, encouraged by short-sellers, or in any way facilitated by short-sellers.

No matter: CEOs today have learned a thing or two about pointing fingers from a Congress that recently invented a reason for high oil prices that had nothing to do with actual supply and demand considerations: blaming Wall Street.

Too bad for Mr. Greenblatt—and the rest of the country—that bankers at Wachovia and elsewhere weren't saying no instead of yes “to almost everybody” back in 2005 and 2006, when the sub-prime crisis was really ramping up.

If they had, of course, those same bankers could be saying “yes” to Mr. Greenblatt, and everyone else who needs credit, right now.

Ah, what the heck. Let’s blame the shorts instead of the bankers.

Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

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BlackLab said...

Why is he banking at Wachovia?

There are myriad community banks in the Baltimore-Towson MSA who, while taking some hits to their capital ratios on account of bad real estate assets, are able and willing to make a $300,000 loan.

Particularly so if Mr. Greenblatt is willing to move his banking relationship away from Wachovia.

Loan covenants may be more restrictive than in times past, but business is still being conducted.

Mark said...

Ironically, this (constrained credit) will create a wealth of brand new short opportunities. Of course, the government will probably try to figure out some way to ban them. In fact, I predict a new law making it illegal to short anything except OIL (for which, no doubt, there will be some sort of government tax incentive to ENCOURAGE shorting).

Anonymous said...

Jeff: I find it ironic that banks are now tightening credit to profitable small business owners like a snare drum when it's those very same small businesses who can, with capital investment in new equipment, create new jobs which our economy needs desparately. Guess you can't blame the shorts for lost jobs either.