The Zany World of Credit

Credit, Webster says, well Merriam-Webster says, it's all of the following:

1. reliance on the truth or reality of something;
2. the balance in a person's favor in an account;
3. influence or power derived from enjoying the confidence of another or others;
4. a source of honor;
5. something that gains or adds to reputation or esteem;
6. recognition by name of a person contributing to a performance;
7. recognition by a school or college that a student has fulfilled a requirement leading to a degree;

Oh yea, I missed one... the provision of money, goods, or services with the expectation of future payment...

Geez, seems to me the credit purveyors of old, the banks, mortgage companies, etc. also have missed this definition as well as number 1 above. See, right now there is a serious credit squeeze going on... oh, yea, you knew that. But why is it? Why is it when the government has stepped in to bail out failing institutions like Bear-Stearns and are backing billions in deals done that it's become difficult to get financing for all kinds of projects?

Let's go back to an earlier post where I talked about those nasty self-fulfilling prophecies. If you say things are bad long enough, they will become so regardless of whether they are or not. The way I see it, the banks (I'll just use that term to cover all mortgage lenders) got VERY greedy during the feeding frenzy from like 2002- 2006 and started giving every Tom, Dick, and Larry money regardless of, ahem, credit worthiness or the prospect of getting paid back. They also naively (really?) ignored the fact that at some point the market would turn and values would not continue to simply go straight up forever, meaning a lot of people who bought new homes, in particular, might be faced with dire circumstances come time to refi their ARM or interest only loan if the value of their new home didn't at least maintain it's value.

A lot of people like to blame the borrowers, some, if not many, of whom are walking away from their homes because they're upside down and can no longer afford them OR, see them now as bad investments. To be sure, many of these homeowners are to blame, but my guess is a much larger number of cases can be blamed on the lenders, and guess what, that's fine, but WHY are people now, who had nothing to do with those decisions, being squeezed getting financing? The backlash is affecting consumer confidence, the housing numbers and a number of other aspects of the economy for NO reason, the way I see it. Now I'm certainly no economist, but if the banks would simply return to a normal MO methinks some of the bad news might go away, or at least ease up a little!

Just like the corporate misdeeds of the likes of Intel laying off thousands at the worst possible time just to make Wall Street happy, the banks squeezing credit now is to me a cardinal sin! Write your Congressman!