Monday, August 20, 2007

Not Jumping On a Hot Stove OR a Cold Stove

Businesses Pinched as Loan Spigot Shuts Off
By David Cho and Thomas Heath Washington Post Staff Writers Monday, August 20, 2007; A01
U.S. corporations for years operated by the maxim that you have to borrow money to make money. Now, the well of cheap loans is running dry.
The corporate bond market, the MasterCard for U.S. companies, has slowed to levels not seen since the recession of the early 1990s, as rising defaults among mortgage borrowers are causing lenders to question loans going to companies as well.
Without a healthy bond market, a swath of corporate activity is eliminated and the economy slows down. Firms stop borrowing to buy drilling equipment for coal mines, plants for manufacturing cars and land for expanding restaurant chains.
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Follow the logic--it's just like following the bouncing ball. Banks and S&Ls made so many bad loans to people who had no credit for the unprofitable purchase of a home, that they no longer have money to lend to businesses with good credit, for profitable purposes.
The banker cat that learned not to jump on a hot stove will no longer jump on a cold one either.
And they call banking a profession.

* For more in-depth articles from Jim on Business and Economy, check out Opinion-Columns.com