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New Problems To Arise From Outrageous Credit Spending

Published 06/23/08 Jeff Bennett - Print Article
E-mail - editor@economyincisis.org

A new crisis may hit Americans who avoided our current housing and mortgage crisis. New fears are arising that a credit crisis will affect our local and regional bank’s ability to provide personal and small business loans. With the loss of loans from small banks, the economy would take a severe blow; small businesses would sink while responsible consumers would lose the ability to borrow for a car or home. We need to increase our economy, not cause it to shrink and die. This will only occur through intelligent and wise spending at both the consumer and governmental levels.

Source Washingtonpost.com:

Increasing struggles by consumers and businesses to make payments on a variety of loans, not just mortgages, are setting off a new wave of trouble in the financial sector that is battering even institutions that had steered clear of the subprime-home-loan debacle.

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The institutions most at risk in this new phase of the credit crisis are regional and local banks, many of which stayed away from subprime mortgages. These firms are key drivers of economic activity in communities across the country. Without them, consumers would lose a source of personal loans. Small businesses would struggle to stay afloat. Construction companies often can't finance local projects without these banks.

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The market values of some of these banks have fallen below their book value, or what accountants say the firms' assets are worth minus their debts. This is a sign that investors expect more losses this year. The market value of Virginia Commerce is about $142 million, below its book value of about $175 million, while Alliance's market value has dwindled to $18.4 million, compared with its book value of $44 million.

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Because they have fewer options than big Wall Street firms for raising emergency funds, these regional and local banks tend to be more vulnerable in a crisis.

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