As has been previously noted here, the Federal Reserve can make money more available to lenders, which it has done, but it cannot force a bank to make a loan. So, in the current economy, lenders are raising their lending standards on all loans, especially loans to businesses.

Quote:

But if the newfound caution of American banks is prudent in the long run, the immediate impact is amplifying the troubles with the economy. The Federal Reserve has been lowering interest rates aggressively to make money flow more loosely and to spur economic activity.

The financial system is not going along: As banks hold on to their dollars, mortgage rates are climbing. So are borrowing costs for corporations.

Some suggest that the banks, spooked by enormous losses, have replaced a disastrously indiscriminate willingness to hand out money with an equally arbitrary aversion to lend — even on industries that continue to grow.

"There's been a lot of disruption in the credit market, and a lot of traditional lenders have really tightened up," said Gregory Goldstein, president of Macquarie Equipment Finance, which leases computer gear and other technology to companies. "Before, some of the standards they lent on were weak, but we think they have overshot and gone too far on the other end."

Here is a link to the full article:
http://www.iht.com/articles/2008/07/28/business/28credit.php?page=1

Michael

I am not the first one to make the connection between social mood and the markets. As we compare the success of the recently released and morally confused Batman movie to the current state of the markets, it is possible to see that the slide in the US economy is far from over. Again, the link here is the social mood. When stock markets are high the social mood swings to popular movies like The Titanic, a mega hit from the 1990’s (http://www.imdb.com/title/tt0120338/ ). This is not an original idea – see the publication (now ceased) SocioTimes at http://www.sociotimes.com/ or the link to it from www.elliotwave.com and you will see this same idea discussed at length. The general population’s dark mood which makes a movie like Batman so popular also drives markets down. Markets are all about confidence (hence the typically optimistic talking points issued by the Federal Reserve, for example) and society’s waning confidence shows up in the success of dark movies with “heroes” who are really unclear about right and wrong. Here is a quote from a review of the new Batman:

“There's an undeniable sense of one-upmanship at work in this sleek, luxurious-looking production—a subtext of "Oh yeah? Top this." But for all The Dark Knight's occasionally bombastic excess, it sort of does top them all, and not only in star power and sheer number of things blown up. Nolan turns the Manichean morality of comic books—pure good vs. pure evil—into a bleak post-9/11 allegory about how terror (and, make no mistake, Heath Ledger's Joker is a terrorist) breaks down those reassuring moral categories.

…

A colleague with whom I saw the movie felt that Nolan's use of 9/11 references was exploitive, that he was tapping into our deep cultural anxiety about terror just to spice up his blockbuster. After a second viewing, I vigorously disagree. The use of 9/11 would be exploitive only if Nolan didn't care about thinking through 9/11 for its own sake, as he clearly does. The Dark Knight was co-scripted by Nolan and his brother Jonathan (a fiction writer who also wrote two earlier Nolan films, Memento and The Prestige). The Nolans' closing vision of the state of Gotham City—a pessimistic landscape of corruption, chaos, and fear—may not be to every viewer's taste. But at least it's a vision, one that, as Sept. 11 draws near again, looks disturbingly familiar.”

Here is a link to that review: http://www.slate.com/id/2195523/

Michael

During the second quarter of 2008, U.S. foreclosure filings more than doubled from a year earlier, as falling home prices left borrowers owing more on mortgages than their properties were worth.

According to RealtyTrac Inc., one in every 171 households was foreclosed on, received a default notice, or notice of a pending auction. Almost 740,000 properties were in some stage of foreclosure, putting downward pressure on prices and increasing the possibility that homeowners would end up owing more than the value of their homes.

Twenty-five million U.S. homeowners face the possibility of owing more on their homes than they are worth, which would make it impossible for them to negotiate better loan terms or sell their property without contributing cash to the transaction.

A glimmer of good news is the fact that new home sales fell less than expected. Sales of new homes fell .06% to 530,000, compared to 533,000 in May 2008. It had been projected by economists that sales would fall to 503,000. The Standard and Poor’s Supercomposite Homebuilding Index rose 4.2%, lowering its loss for the past 12 months to 42%.

Falling home values and rising default rates have lead RealtyTrac to almost double the projected number of foreclosures in 2008 to about 2.5 million, although the housing bill passed last week by Congress may affect those figures. The housing bill is intended to help Americans with subprime mortgages refinance into 30-year fixed-rate mortgages backed by the government.

Forty-eight states had increased foreclosure filings in the second quarter of 2008, compared to a year earlier. Nevada was the hardest-hit, where one in every 43 households received a foreclosure notice during the second quarter, four times the national average and an increase of 147% from a year earlier. California was the second most affected, with foreclosure filing tripled from the previous year. Arizona, Florida, Colorado, Ohio, Michigan, Georgia, Massachusetts, and Illinois rounded out the top ten.

According to Guy Cecala, publisher of Inside Mortgage Finance, lenders are expected to cut in half the number of mortgages to purchase homes in 2008 compared with two years ago.

In a report published last week, economists at Lehman Brothers Holdings, Inc., predict that foreclosures will push all home values down by an estimated 6% and will contribute to national prices declining another 15% by the end of 2009.

Rick Sharga, executive vice-president for marketing at RealtyTrac, believes that a big problem in the market is uncertainty. “Buyers aren’t sure this is the right time to get in, lenders aren’t sure where to lend, investors aren’t sure where to put their money in an environment of depreciating assets. The psychology of the market is as responsible as the financial part of the market.”

Link to the article: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=abN2dxnardoQ

Kathleen