by pup55 » Sat 07 Mar 2009, 08:49:56
$this->bbcode_second_pass_quote('', 'w')hy are we not seeing loans?
I think I can answer this one. No one will lend anyone money because no one knows what anything is worth.
BTW if the deal is enough of a no-brainer and your credit is good enough, or if you already have deep enough pockets so that you are low risk, you can get a loan right now. I just refinanced the other day, and I am still waiting for the rental property market to bottom and have been pre-approved for some money on that...so there is some money around..
But, in a general sense, no one knows what a piece of real estate is worth right now... no one knows what a share of stock is worth... the value of borrowing money so as to finance a new business or new piece of equipment is really questionable...since no one knows if there will be orders in six months, and what the pricing situation is going to be...
A second problem, directly related and critical, is still that the lenders do not know how much risk there is for a given project.... so unless the borrowers are absolute blue chippers, they are hesitant to loan out money because their risk is not adequately compensated.
A third problem: no one trusts anyone, starting at the top. No accountability, no security... How do you know that the person you are lending money to is not a mooch?
A fourth problem: Given the above 3 problems people will still be willing to loan out money if the ROR is high enough. Example: Even in a banana nation like Ecuador it is possible to get a loan... the last I checked, the prime rate, for the most trusted borrowers was about 25 percent.... With rates that high, the benefit of doing the loan was substantial enough that people would pry those pesos or whatever out of their pockets and do the deal. But here in the USA, with interest rates on government loans near zero, and interest rates on other loans approaching that, no one is adequately compensated for their risk, so they do not do the deal.
So, the downward spiral will continue. Interest rates are too low to compensate lenders.... the money dries up..... people default on business loans and mortgages.... the value of the property goes down further.... the lenders see this and keep their money.... but stupidly, Bernanke lowers interest rates again, and makes the problem worse. Therein lies the current dilemma... and it is a real problem..