Having earlier said in this blog that interest rates are being seen as both the cause and the cure, yet again (and entirely predictably) the US Federal Reserve cut interest rates on 30 January 2008 (Hong Kong time).
Interest rates in both Hong Kong and the US are now officially below the rate of inflation. That’s small comfort to the hordes in the US who defaulted on their mortgages, abandoned their homes and left entire neighbourhoods derelict. Increasing Adjustable Rate Mortgages hit falling home values and home owners fell into Negative Equity.
And with negative interest rates, borrowing theoretically becomes easier for individuals and SMEs.
Not so fast………….if banks and financiers are still coy about their solvency and quietly anxious about their liquidity ratios, particularly in the US, expect them to be stupidly obnoxious and outrageously greedy in the terms of the loan they attempt to extract from SMEs.
Banks have never been thrilled about lending to SMEs and never really trusted them. Given the lies that the banks themselves manufactured about sib-prime and the resulting derivatives, it’s now at a stage where they don’t trust each other.
© 2008 Sanjeev Aaron Williams All Rights Reserved
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