Last night in NYC I had dinner with people from the financial world who corroborated what I am experiencing myself and that is that while governments around the world are pumping money into banks, banks are not lending it or are lending it at shark loan rates. I heard stories of well leased real estate properties with great cash flow in Manhattan that can´t be financed for rates lower than 6.5%. This is the same thing that is happening to me and my partners in a 120,000 square feet building we own in Tribeca and are trying to refinance. Banks are asking for draconian spreads in order to rebuild their inefficient structures. In the meantime cheap government funds are not passed on to the economy and the economy is starving for credit. Given this situation I think that governments around the world, and I say around the world because this is not only a US government problem, should disintermidiate banks and start lending directly to corporate borrowers. Only faced with this competition I believe that banks will change their predatory behavior and adjust. Lowering the salaries of the top bankers it´s not enough. Banks have to reestablish credit.
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Antoin O Lachtnain on February 6, 2009 ·
If the State gets involved in lending things get really messy. If corporates can get access to credit, but not SME’s, it’s easy, although not pleasant, to imagine what’s going to happen next.
The trick here is to build a decent bank, that is built for scale, rather than high margins. Shinsei in Japan seems to have done this.
Lasse Enersen on February 6, 2009 ·
If a government starts to lend money to corporations, it would need a national bank to do it. Since central banks would be the only possible instrument, and that they are already lending to corporations directly, I don’t see any change in that proposition. I see that the only real change would be to let the free market take control and let the banks that have done poor banking go bankrupt (hence the word “bank”) and let the competent banks take over. It’s just the big crappy banks’ media skills that we still believe that they are somehow “systemically important” and that if you let one go bankrupt, all the other will follow. This is nonsense. We have to stop feeding zombie banks, and let them go bust.
George on February 6, 2009 ·
Amen to that ! Same thing here in the UK. Biz of all sizes are going bang because they can’t get credit from banks who are sucking £££ from the government just to stay afloat themselves. And when someone goes down, then there’s the domino effect… See now Icelandic Bank/Bagur dragging down Iceland Stores, House of Fraser, Debenhams, and even Hamley’s !!!!!
Sean on February 10, 2009 ·
The best way to achieve this imo is for governments to set aside some amount – say 10% – of their ‘rescue’ funds to capitalize brand new banks. They have to save (to some extent) the incumbents or risk systemic failure, but as you so correctly point out these walking dead are going to rely on their oligopoly to extract excessive rents for some time to come.
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Marc Arza on February 6, 2009 ·
Somtimes banks do not properly play their role, but governments are much worse at banking than the worse banker in the world. There is something much worse than not giving credit, giving bad credit, and that is exactly what would happen if politicians start playing with finance.
Marc Arza
http://www.futura.cat/blog
http://www.twitter.com/markarza