Monday, July 28, 2008
There's a sobering report in the New York Times today about the rapidly changing environment for commercial lending and the impact it is having on the broader economy. It seems the reckless expansion of credit for mortgage lending a few years ago isn't working out as lenders had planned.
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.You'd have thought that, back when money was being lent to anyone who could fog a mirror so they could buy a house, someone in a position of power would have considered the possibility that those loans going bad some day might affect the ability of legitimate borrowers in the future.
Companies that rely on credit are now delaying and canceling expansion plans as they struggle to secure finance.
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. “This is why God made banks, for this kind of transaction. This is going to slow down the American economy.”