Fallout: The Financial Crisis

Where’s the credit for consumers?

Jeremy Hobson May 20, 2009
HTML EMBED:
COPY
Fallout: The Financial Crisis

Where’s the credit for consumers?

Jeremy Hobson May 20, 2009
HTML EMBED:
COPY

TEXT OF STORY

Kai Ryssdal: Assuming that he’s going to have to borrow a lot of money from somebody, this next item will come as sweet music to Governor Schwarzenegger. There were new signs today that the credit markets are thawing even further. The London Interbank Offered Rate — LIBOR, in the vernacular — fell to a new low. LIBOR’s the rate banks that have to pay each other to borrow. And it’s also a good measure of how willing they are to lend to the rest of us.

One of the things sending LIBOR lower was the word that Bank of America raised more than $13 billion by selling some stock. That’ll go a long way toward raising B of A’s cash cushion that the stress tests required. So with all this good news in the banking sector — and the race by some of the big banks to pay back their government bailout money on the theory they don’t need it anymore — where is the credit for consumers? Marketplace’s Jeremy Hobson has that story from New York.


JEREMY HOBSON: For the 30,000 foot view I went to Chris Low, who works just off the trading floor at FTN Financial in midtown Manhattan. Here’s his assessment of the credit markets.

CHRIS LOW: They’re getting better, and that in itself is a huge step.

He says banks can borrow cheaply from one another now, knowing that various governments are backing them up. But many ordinary Americans still can’t get loans, mortgages or in some cases, even credit cards. One reason, Low says, is that not all banks are getting the same kind of support from Uncle Sam.

LOW: There are 8,000 banks in the U.S., and if you look at all the community banks, they’re not getting any help.

OK, but what about the big banks, the ones that are getting help?

LOW: They are hoarding cash, because they want to pay the government back as fast as they can.

And there’s another reason consumers aren’t sharing in the free-flowing credit, says John Lonski. He’s chief economist at Moody’s Capital Markets group. He says banks don’t want to lend to consumers because they’re not sure they’ll get their money back.

JOHN LONSKI: Consumers are still viewed as being risky, mostly because of a very poor outlook for employment as well as income.

In other words, just in case the economy stays in recession for a while, banks are being careful about who they lend to. And Chris Low says that may not be a bad thing.

LOW: A big part of the credit bubble bursting was the fact that consumers couldn’t service the debt they already have. It doesn’t make sense to extend a whole lot of additional credit because again, we’ll be in the same place where they can’t afford to pay it back.

Low says the responsible restart of consumer lending in this country could take four to five years.

In New York, I’m Jeremy Hobson for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.