How the credit crunch affects you

Many people don’t understand the mechanics of a credit crunch and how it affects them. Banks are not going to hang a sign on the door saying, “we are preoccupied with our own problems and we don’t have much interest in yours”, but there have been changes and these will continue. If you are a typical public company bank CEO the only thing your investors want to know is when you are going to be done writing off bad loans and investments.

You are busy raising new capital and liquidity from very expensive sources. The regulators are hammering you about loans they had no problems with two years ago. The last thing on your mind is whether your lenders are making new loans at Prime. The reality is that individuals and businesses with a good credit history and a reasonable plan still have access to credit. The terms will be a little tighter and the rates will be a little higher than they would have been several years ago.

They will need to be dealing with banks that have been able to maintain a focus on the value of long term relationships. This should actually be a time for all prudent borrowers to take advantage of the decline in asset values that accompany a credit crunch. I wouldn’t dream of picking the bottom or urging people to jump with both feet into investments. If you use the same prudence that kept your powder dry, you will have great long term opportunities. If easy money chases out smart money, tight money attracts smart money.

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