Credit is crunching again

Even after the trillions of dollars in bailout money, credit is contracting at a record rate.

During the September 2nd week, U.S. commercial banks cut back on their commercial & industrial (C&I) loans by $10.3 billion; their real estate credit by a huge $15.3 billion; and their lines to consumers by $6.4 billion. In sum, $32 billion of banking sector lending evaporated during the week, bringing the total contraction to over $200 billion since the end of July. Not only is that unprecedented, but it is also a record decline in percent terms — down at over a 12% annual rate on a 13-week basis. Indeed, we have massive government stimulus that is still just patching a leaky boat, and the consensus economics community is trying to “sell” this idea to investors that credit typically lags the cycle. That may well be true, but not by this much — these declines in lending activity are triple the most severe downdrafts we have seen in the modern era — there is no comparison.

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you've got to be kidding me!

Good God, Bernanke has the money supply the markets, interest rates on "flush", I mean flooded with easy money.

This has to be due to plain ole "no income, no job" and "very week growth" projections.

Or....(a good thing) might be increased leverage, are these financial institutions paying any attention to that and this is part of the cause?

How much of this is an indication of how fu*ked up

banks' balance sheets are? These insolvent bastards! - Financial Information for the Rest of Us.

Just how f*cked are the banks?

Pretty f*cked.

Remember, the values at which subprime mortgage bonds were trading at reflected "irrational fear" and "unreasonable expectations of default."
As of last week, the ABX index of sub-prime mortgage debt showed that AAA-rated securities from early 2007 were trading at 28 cents on the dollar – AA was at 4 cents, near all-time lows. No one can say that $2 trillion (£1.2 trillion) of sub-prime and Alt-A debt is still trading at panic levels, exaggerating losses. The dust has settled. What we can see is that creditors will never recoup their money.

More than a year later, it is clear: There was no panic; this was a JUSTIFIED level of trading and reflects the ugly reality - the investors in those bonds will NEVER get their money back.
They were swindled, to be blunt. "AA" bonds trading at 4 cents and "AAA" at 28? Remember folks, "AAA" credits are supposed to have a probability of default roughly equivalent to that of the Sun colliding with the earth.
There is not now and never was a "liquidity" problem. The problem is, has been, and continues to be a bankruptcy problem. Individuals, corporations and even governments are in fact insolvent. Most banks are and were insolvent.

is was fictional money

This would make a great "once and for all, quit the spin" blog post because we, as well as Ritholtz, Naked Capitalism, Calculated Risk, even Bloomberg and the New York Times at this point are all saying the stuff is toxic because it's worthless. Yet trying to claim it's just a liquidity issue almost tries to mask the great swindle of history with those CDOs and corresponding credit ratings.

I haven't read Bail Out Nation, Ritholtz's book on this yet.

Does this mean...

I can pay off my mortgage at this rate? I'll get my checkbook.
Or maybe they can be packaged for the PPIP.
Frank T.

Frank T.

Citigroup today did a "PR stunt" IMHO

They claimed they expect to pay back TARP, at a profit....but...buried later in the article.....couldn't give a timeline.

So, what does that mean? Citigroup is one of the largest bail out recipients with the biggest toxic asset, derivatives on their books.

Credit card defaults ascend

Looks like the small uptick in the 2nd quarter is over.

(Bloomberg) -- JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc., the biggest U.S. credit- card lenders, said defaults climbed in August as the unemployment rate jumped and the impact of tax refunds waned.
The industry’s data may signal that the second quarter’s improvement will be short-lived as tax refunds and federal efforts to stimulate the economy run out. Defaults tend to track the jobless rate, which dipped in July for the first time since the start of the recession before resuming its climb to 9.7 percent in August.
The rise “suggests that the past several months’ data may have benefited from seasonal factors and that the consumer credit cycle has not yet run its full course,” Oppenheimer & Co. analyst Chris Kotowski wrote today in a research note.
Bank of America said write-offs rose to 14.54 percent, the highest among the six U.S. lenders reporting today. That compares with 13.81 percent in July, according to a federal filing by the Charlotte, North Carolina-based company.
Citigroup’s soured loans rose to 12.14 percent last month, from 10.03 percent, while JPMorgan said write-offs advanced to 8.73 percent from 7.92 percent in July, according to a federal filing. Both are based in New York.

pretty incredible

you might want to turn this into an Instapopulist.

I saw it too and it's really damning....14.5%

That's of people who could even get a credit card are literally abandoning their debt, which I think for most people is pretty serious for them to do that. I don't know what the ratio is for charge-offs vs. people declaring bankruptcy soon after, that would be of interest...

So, ok, now we're hearing from a variety of places:

1. we won't get any real financial/regulatory reform
2. some are starting to realize the U.S. has major structural problems with the economy
(to the point of cyclical people I am wondering if they live in a vacuum, and yes that is also a physics geek pun)