You cannot keep an old dog down

A post in the Yahoo Financial Stability Group this morning

You may be amused by the following quote from a well-known 19th century economist……

Moderator

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“Owners of capital will stimulate working class to buy more and more
of expensive goods, houses and technology, pushing them to take more
and more expensive credits, until their debt becomes unbearable.
The unpaid debt will lead to bankruptcy of banks, which will have to be
nationalized, and State will have to take the road which will
eventually lead to communism.”

Karl Marx, “Das Kapital” 1867

Ready and willing to lend? Pull the other one.

Jim Pickard’s post yesterday in Westminster Blog anticipated a speech to the CBI Entrepreneurs Conference by John Hutton,

“The business secretary will tell a CBI audience that business people should not lose their nerve despite the well-publicised difficulties facing lenders and borrowers”, [and that although] he will concede that fears over liquidity have spread from the stock market to “workplaces and homes” around the world, . . . banks remain “ready and willing to lend to small and medium businesses”.

I sometimes wonder whether politicians live in the same world as the rest of us, and what it is they are being told. Banks will undoubtedly continue to lend to good businesses (whatever that they may mean) but the support they offer is, at least at the moment, qualified. In the last quarter I know of three high street clearing banks that have pulled loans to prospective borrowers, causing transactions to fail. For a corrective view see Luke Johnson in today’s FT,

“Many of the main clearing banks appear to be downsizing their loan books and shrinking their balance sheets, although they are pretending the opposite. I have heard of dozens of cases in recent months where lenders have used flimsy excuses to refuse facilities to corporate borrowers – for acquisitions, capital expenditure or fresh undertakings. Fees have risen, spreads have widened, covenants have tightened and demands for added security have risen substantially. Inevitably, Robert Frost’s definition is once again proving correct: “A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.”