Isn't part of the reason banks aren't lending as much the fact that people are not borrowing because

[RB TexLa]

we are in a recession? Who would want to borrow money to expand a business right now?

[FBaggins]

1. Yes

AND the fact that even if they haven't tightened their lending standards, fewer consumers meet even the old standards as credit scores have deteriorated.

[DURHAM D]

2. Many small businesses need to borrow to maintain their business. nt

[MercutioATC]

3. I'm in the process of doing exactly that.

...but overall, you're correct. Part of the decrease in lending is lighter demand.

[RB TexLa]

5. Just seems that it's never mentioned, depending on who you listen to

it's either all the banks fault or all the president's fault.

[sandnsea]

4. We're in a recession because it's a credit based economy

People can't borrow, so they can't spend. Every business is feeling that crunch and is in desperate need of credit to carry them through this mess. They, in turn, have to cut back because they can't get credit, causing job losses as well as hurting B2B sales.

Your thinking is the reason we're in this mess. You praise the crooked bankers who concocted this mortgage scam, and then can't accept the economic consequences of the implosion.

On Edit:

And the Usual Fuckwits chime in with their free market stupidity. Ugh.

[notesdev]

6. Sort of

The reason lending was as high as it was before the bust is that lending standards went to hell - they were in some cases, basically "do you have a pulse?"

That's obviously a ridiculous standard and no substitute for actual risk evaluation, and it led to the expected consequences - namely, a large amount of loans given to people who never could pay them back, which has brought us to a frenzy of default.

Since the bust, there has been a return to more traditional lending standards, so far far fewer people qualify as borrowers.

That's the main reason why there is less lending.

Other reasons include:

- fewer people wanting to borrow money
- expectations that housing will continue to go down, people holding out for better prices
- banks have an essentially risk-free alternative option, borrow money from the Fed at 0% and lend to the Treasury at some nominal return, i.e. free money
- banks' balance sheets are awful, many of them would be admitted insolvent if they recognized losses properly and didn't engage in accounting games/fraud. As of now, they simply refuse to admit they are insolvent, and the Fed lets them.

[NNN0LHI]

7. Who would want to borrow money to expand a business right now?

Any business connected to the military industrial complex would likely need to be expanding now.

I bet our weapons makers are going strong.

About the only business we have left.

Don

[Ikonoklast]

8. What about small businesses that need to update their physical plant

and worn-out equipment, and have always done so on a regular schedule, but have no access to capital?

There is a time-frame and useful life for equipment, and if those parameters are extended by too large a degree, maintenance costs will eventually exceed replacement costs, especially after figuring in a depreciation vs. fully depreciated assets.

Productivity suffers, profits suffer, costs increase.

[hlthe2b]

9. Given the number of shuttered storefronts across the US...

even in the more upscale areas, I'd venture to argue more small businesses lost their businesses due to the tightening of credit. Many might have survived, if given the chance to borrow during the lean period.

[sandnsea]

11. Precisely

These people could be hit by a truck and defend the driver because, after all, capitalism requires people who put profit over little things like safe driving regulations.

[walldude]

18. Yep... Small business in general takes 2-3 years before seeing any profits

They live on credit for those first couple years. And in this day and age a small business is more likely to fail than not. Box stores, junk made in China, insanely high operating costs. It's an uphill battle for them.

[Double T]

10. free market capitalism is an absolute failure; the test was run and the outcome..........

was trillions in un-repayable debt and an economy that can not get restarted, regardless of what the 'glimmerers' and 'greenshooters' say. The banks are absolutely at fault with their 60:1 leveraging of a dollar and their fraudulent 'AAA rated' mortgage securities. Small businesses are going under at a record pace because they can't get loans and their business is sharply down. I personally think the banks should be nationalized as our banking culture in the USA is totally and utterly corrupt with no change in sight. Small businesses would have a difficult time paying back loans in our current economic environment.

[abelenkpe]

12. free market capitalism

Hey, I know, let's play a game with no rules and no referees that puts peoples lives in the balance. That would be fun right?

[C_Lawyer09]

16. When you surrender to rules

You ruin the dynamic effect of an actual free market, none of which we currently have. Take a look at bills like the "buy american act" wherein 147 countries are considered american. Our economy is so regulated now, free market is a joke. If we had a free market, banks would not have the carte blanche they do now.

[krkaufman]

13. I figure banks just don't have faith in "the recovery" ...

... and so aren't risking their money. Though, I suppose, it could simply be that they're just opting to make their money in relatively less risky ways.

[C_Lawyer09]

19. They don't have faith in the recovery

And the primary reason is because knee jerk, short term solutions, which include govt. work projects, are not long term winners.

[prole_for_peace]

14. A lot of my tax clients want to get loans for their business

and are unable too. These are business with million dollar receivables and/or excellent credit. I had one that makes millions a year and the bank turned them down. Another was offered only $250k of the $1m they applied for.

[C_Lawyer09]

15. No, it is because banks are sitting on money

Because would be solutions are tenuous right now, that, and the fact that there is no money being saved. That is why it is paramount to address the economic downturn, by stimulating cash flow vis a vis small business. This is why make work, knee jerk govt. programs are not a long term or even mid term fix, because for banks to loan, they must see a liklihood of realizing the return. Hence, temp programs that may help some, not many from realizing poverty have minimal effect on banks getting off the money. People keep trying to borrow, but until banks see an indicator of consistency or movement within the "real" read business economy, things will not improve.

[sendero]

17. Of course...

.... the idea that the problem with this economy has much to do with bank lending is nonsense. CONSUMERS ARE BROKE, THE DEMAND SIDE IS BROKEN no amount of incentive to small business will fix that.