The state of domestic and global commerce seems to have ground to a halt. Many of you have been kind enough to either comment or email us your experiences regarding the continued unwillingness on the part of the nation's banks to provide credit to anyone other than Uncle Sam. This is reflected in Treasury bill yields of practically zero and ten-year Treasury note rates of less than 3%. We hear stories of banks continuing to sever lines of credit to long time commercial customers as well as the refusal of banks to provide standard bankers acceptances and other transactional guarantees. International commerce is declining rapidly and it is not just due to declining demand. Port-to-port delivery of goods requires bank guarantees of delivery as well as short term financing. Banks are providing neither and thus, the global economy contracts dangerously. Meanwhile, there are countless stories in this weekend's papers of businesses being driven to bankruptcy for no other reason than their bank relationships, some that have been in place for decades, have been severed over the bank's fear to conduct normal business.
Over the last month the Treasury has injected approximately $250 billion of low cost capital into the nation's banks. Last week, banks began raising stable funding through the FDIC's new program to guarantee new senior bank debt for the first three years of it's term. In a holiday shortened week, billions of debt has already been issued. The combination of immense short-term liquidity that has been provided by the Fed, the FDIC's debt guarantor program and the Treasury's capital injections should start providing positive results. However, I strongly hope that the Federal Reserve, the Office of the Comptroller of the Currency and the Office of Thrift Supervision are closely monitoring and engaging with the banks and thrifts in their regions. For example, if the truck maker Navistar is pointing out examples of customers inability to finance either the purchase of new trucks or obtain working capital, the Fed's need to investigate what the problem is. If the banks aren't lending because they are still terrified about letting capital out the door, stuff them with more capital (provided the bank is otherwise healthy) to make them less terrified and willing to conduct business as close to normal with their strong customers. Right now, this problem is more important and probably "easier" to fix than the housing problem. It needs vigorous and steadfast attention.
Alright, enough with the lecture. All this talk about the importance of banks got me thinking about a little tune that was a big hit when I was a lad. It was performed by the incomparable Sammy Davis Jr. "The Candy Man". Here is a slightly altered version I wrote, "The Credit-Man". Because some of you are either from overseas, or too young to remember, I've attached a clip of the great Mr. Davis performing his number. Enjoy;
Who can take a TARP capital, borrow a billion or two
Lend it to a shipyard at a spread of three-oh-two
The Credit Man, oh the Credit Man can
The Credit Man can 'cause he lends it with love and makes the world feel good
Who can take a bridge loan, put it against next month’s supply
Lend it to the General Foods to make groovy lemon pies
The Credit Man, the Credit Man can
The Credit Man can 'cause he lends it with love and makes the world feel good
Yeah, yeah, yeah
Who can simply borrow, debt the Fed will guarantee
Finance a grain dealer and collect a big fat fee?
The Credit Man, the Credit Man can
The Credit Man can make everything he lends practically riskless
He can collateralize your children, and put in any covenant he wishes
The Credit Man can 'cause he lends it with love and makes the world feel good
Yes, the Credit Man can 'cause he lends it with love and makes the world feel good
a-Credit Man, a-Credit Man, a-Credit Man
Credit Man, a-Credit Man, a-Credit Man
Credit Man, a-Credit Man, a-Credit Man
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