The recent US interest rate cut looks and feels good: it seems to be the right gesture to help out the soon-to-be-evicted sub-prime mortgagors, or those desperate to re-finance. But substantively, it’s a crock, an utterly hollow gesture. The warm assurances from the US Federal Reserve that pursuant to its cash injections and twice-lowered interest rates in September and November 2007, credit is more easily available, doesn’t add up.
First, more mortgage companies and smaller banks in the US will fail.
Second, now that the conga line of superficially embarrassed, thick skinned investment bankers is forming (think Merrill Lynch, Citigroup, UBS, Northern Rock……….), the rest of their fraternity are now recalling that they were supposed to be “prudent bankers”.
After all, the final figure of failed sub-prime based credit derivatives is nowhere in sight. Christmas is coming too. There’s not much time left to act prudent. In corporate US, the yuletide tradition is that of firing employees. Banks are no different. If their figures just before Thanksgiving look so awful, the least they could do is to cut their workforce and look lean. It’s only a matter of time before the shareholder’s knives come out aimed at some turkey in a suit.
There will be a flurry of internal directives and sharp reminders to scrutinize credit applications at all levels – from retail, to corporate, to investment.
What does that mean for the business owner who’s been managing his cash flow quite well? More hassle. More paperwork. More refusals. Interest rates may be lower, but bank resistance will be higher.
The really smart business owner will start looking for finance from private funding sources.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
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