Worried Banks Sharply Reduce Business Loans

[RamboLiberal]

Source: NY Times

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.

Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term “commercial paper” not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data. That is the largest annual decline since the credit tightening that began with the last recession, in 2001.

The scarcity of credit has intensified the strains on the economy by withholding capital from many companies, just as joblessness grows and consumers pull back from spending in the face of high gas prices, plummeting home values and mounting debt.

“The second half of the year is shot,” said Michael T. Darda, chief economist at the trading firm MKM Partners in Greenwich, Conn., who was until recently optimistic that the economy would continue expanding. “Access to capital and credit is essential to growth. If that access is restrained or blocked, the economic system takes a hit.”

Companies that rely on credit are now delaying and canceling expansion plans as they struggle to secure finance.


Read more: http://www.nytimes.com/2008/07/28/business/economy/28credit.html?_r=1&hp&oref=slogin

[BlooInBloo]

1. (shrug) All of their mathematicians told them of their folly years ago. Fuck em.

[Demeter]

2. This Should Really Finish Off the GOP and the Chicago School of Economics

Good

[Pale Blue Dot]

3. This may be the most important article of the day.

This is a major reason why many of us are so pessimistic about the economy. We are losing jobs daily, and all of the traditional methods we have used to create them are either gone or are being eliminated.

This is going to hurt EVERYONE. K&R.