Sky isn't falling in Kern County, Ca

Bakersfield is in the heart of subprime mess. But, lookey here: Lenders lending, payrolls met.... I guess the sky isn't falling.

I believed the GWB administration the first time the told me that the sky is falling (WMD). I don't believe them this time when they say the sky is falling.

http://www.bakersfield.com/hourly_news/story/566231.html

No credit freeze on Kern's Main Street
Bakersfield residents — qualified ones — can still get home, car and business loans, local lenders say, despite Wall Street’s throes.

“We are open for lending in Kern County,” said Neil Marshall, chief financial officer at Kern Federal Credit Union.

As with other credit unions, home and car loans are a staple for Kern Federal, a $270 million-asset institution that opened in 1949.

San Joaquin Bank, meanwhile, a business bank headquartered in Bakersfield, is also making loans and maintaining lines of credit.

“We’re accommodating all of the credit requests of our customers,” said Bart Hill, chief executive officer of the $878 million-asset bank.

Applicants must be qualified, they say, and plenty of people do get turned down.

“Marginal borrowers just aren’t going to make it,” said Beth Cheatwood, branch manager of Medallion Mortgage, an affiliate of Bakersfield-based mortgage bank Golden Empire Mortgage Inc..

Medallion Mortgage is “still getting applicants like crazy,” Cheatwood said, as local home prices decline.

Would-be buyers today need a credit score of at least 600 and enough cash to cover a 3 percent down payment for federally insured loans, she said. In January, the down payment requirement will go to 3.5 percent.

Daniel Penrod, an industry analyst at the California Credit Union League, said mortgage volume for credit unions statewide increased 9.62 percent during the first six months of 2008 compared to the previous year. The measure counted fixed-rate primary loans.

Car loan volume has softened, Penrod said, but that’s mostly due to lower demand for new cars.

“It’s not because the money isn’t available,” he said.

Credit union membership has become widely available, now requiring only county residence, for example. Deposits are insured, as they are at banks, for up to $100,000 through an industry-funded program. Available institutions can be found at www.findacreditunion.com.

Marshall, of Kern Federal Credit Union, believes the current turmoil could be good for his not-for-profit industry.

“I think this is an opportunity for credit unions,” he said, which had been criticized by some for being too conservative during the real estate boom.

Most are now well capitalized, he said.

Institutions that made or were exposed to subprime and “exotic” loans have been hurting.

On Monday, Citigroup agreed to buy the banking operations of Wachovia Corp., the latest casualty.

In Bakersfield, the local office of Wachovia Mortgage, at 5300 Lennox Ave., had already closed, an empty office revealed Monday.

Wachovia Securities, which has a presence on the 11th floor of the Stockdale Tower building at 5060 California Ave., will not be affected by the sale.

Hill, of San Joaquin Bank, said the community bank has the same credit requirements as ever: It looks at the borrower’s ability and willingness to pay back the debt.

Lenders and brokers who made subprime loans, he said, often “overlooked the ability of the customer to repay the money,” he said.

 

I don't think the near-term fallout from a continuing credit cruch will be seen in small personal loans, car loans, mortgages, etc. The thing to watch first is whether corporations can access the short-term lending markets such as commercial paper to cover inventory, payrolls, etc. The fact that even such seemingly mundane but essential credit markets had frozen up 10 days ago was what spooked Paulson and Bernanke to realize that this was a more serious and systemic problem than they realized.

If banks don't lend to each other or to large, stable corporations (such as Apple) even for short-term, historically routine and "safe" loans, we are in big trouble. I believe that's the major concern, or at least the biggest near-term concern. If large companies can't raise the funds necessary to do business, they will be forced to contract, never mind investing in new opportunities. And if banking institutions continue to fail, that lending environment will likely get worse and worse.

Sure, over time, the "invisble hand" of the free market will sort things out, in a way. But in the meantime, lots of relatively stable financial firms will be swamped along with the "bad actors." And with greatly reduced access to even the most basic forms of credit, companies will have to lay off more workers. Then I think you're talking serious unemployment. Which will make the market for the banks that make it through that much worse, lengthening their downturn.

There have been hedge funds buying up some of this subprime crap; for example I think one purchased $17 billion worth of the junk from Merrill a few months back at like 22 cents on the dollar. The hedge fund's view was the same as Paulson's -- once this crisis finally fades, these battered assets will be worth more than they are now. The problem, though, is that there is now so much of this toxic stuff out there that the private sector isn't big enough to clean it out, at least not before much more damage is done, given the lack of access to the credit markets. In other words, even if other hedge funds thought they could buy these subprime bundles on the cheap and make money later, they simply can't borrow the money right now to do so, because of the very financial crisis that is creating that potential opportunity.

That's a major financial meltdown that will find its way to Main Street soon enough, and quite nastily, I fear. If nothing is done in Congress this week, let's check back in Bakersfield in six months.

 

That may be the first bailout post that actually makes logical sense.

 

The banks: we'll be able to trust each other if we can give our festering bags of garbage to the taxpayer.

 

The banks were injected with $630 billion of liquidity from the Fed yesterday. They have money. If they want to lend to each other, lend to each other.

Tell me again why Joe Six Pack should take their crap off their books.

 

I understand your cynicism, but I think it is misplaced here. In this case, the government (or the taxpayer, if you prefer) would have a chance to play the role that the savvy hedge fund or the like would play if it could still access the capital markets. That is, buy distressed assets on the cheap, and sell them later for a profit.

There is every reason to think that the goverment could recoup much of the cost of a bailout by selling these securities down the line.

That's another reason that I think the Republican proposal to merely insure these assets rather than buy them outright makes things worse, not better. That would eliminate the goverment's (and taxpayers') potential for profit/gain. Plus such types of insurance were already available and basically took the companies offering it down; that's precisely what AIG's major problem was. So insuring rather than buying the assets puts the government potentially on the hook anyway, but takes away the upside. It's the worst of both worlds.

Still, I can understand why many are reluctant to believe what this administration says. It's just that I think this time, Paulson and Bernanke are right, at least directionally.

 

The banks don't want to lend to each other because many of them have the same toxic junk on their balance sheet that has been taking their kind down over the past two weeks. And because nobody knows just how much crap the others have or who might be next to go, they are opting to play it safe by lending to almost nobody. Why extend credit to another bank if you worry that bank might not be around in a few weeks or months?

Sure, I understand the sentiment to let Wall Street burn. After all, financial institutions created much (or most) of this mess themselves. But when the market loses 1.3 Trillion in value, as it did yesterday, whose money do you think that is? A lot of it belongs to "fat cats," certainly. But a lot of it is Joe Six Pack's, because that's where his 401(k) or pension fund is invested. Main Street is more directly tied to Wall Street these days than ever before.

 

I am cynical. I have decades of watching the government in action to back me up.

The same jackasses in charge of this program (Paulson, Bernanke) are the same ones who have either been
a) clueless; or b) blowing smoke up our asses the last two years.


"subprime is contained"
"the economy is good"
"the economy is strong. strong fundamentals"


Any of those sound familiar? So I'm expected to believe that the same jackasses who've been oblivious to this problem now are going to solve it? Puh-leeze.

The government will buy these toxic POS at a premium, and sell at a loss. And the bankers who created this mess will profit big time. The last time I heard the government it wasn't going to lose money was the Iraq war. Do I need to go find the quotes?

Banks won't lend to each other because nobody knows who is healthy and who is not. Bank after bank said 'we're healthy' but then later we find their level 3 assets are far over-valued and overleveraged. That's their problem. Play accounting tricks and parlor games with your assets, and at some point, jig is up.

 

60% of the wealth of this country is concentrated in the top 1%.
80% is concentrated in the top 10%.

It looks to me like Joe Six Pack made his decision and let their congresspersons know, in record numbers.

 

btw, the stock market going down yesterday just may be because the fundamentals suck.

Even after all the carnage yesterda, the S&P 500 still has a P/E ratio above 20. The Russell 2000 has a P/E ratio of "nil."

Did Congress cost the stock market $1 trillion plus today? No.

Congress just helped everything get back to reality by exploding a lot of the hype and govt. intervention that has propped up the market.

 

I don't believe this for a second, either. There are trillions of dollars on the sideline by private investors. They could buy these toxic POS investments in a second. The government doesn't have any magic beans in order to buy this crap. Why doesn't private money buy these things if they are such a great bargain?

Answer: Because they aren't a great bargain.

 

The government can recoup quite a bit of the cost if it is able to sell these securities later for something close to what it paid for it. Even if it sells them at a small loss, that would be recouping much of the cost of the bailout. My point was that the initial outlay would be just that, an initial outlay. A reasonable amount of that could be repaid, thus reducing the ultimate cost to taxpayers.

I did not mean to suggest that this was a surefire, dynamite money-making scheme for the government. Just that it wouldn't be $700 billion out the door, none of it ever to be seen again.

The hedge funds aren't going to invest in these "POS" securities unless they can project a much higher rate of return, say more like 20-30%. And their cost of borrowing is much higher as of the past few weeks than it was. I'm not claiming that this subprime crap will return anything like that to taxpayers. Though just because the hedge funds or other private capital aren't buying them doesn't mean that some other entity (like the government) should expect to lose money in doing so.

But the government does, in fact, have access to some "magic beans" to buy them with that the private sector does not have -- tax revenue and the issuance of government bonds. It also has the ability to change the rules of the game, at least temporarily. You contend that the government shouldn't, in fact, spend its money and energy that way, and that's fine. But that's a separate argument.