Posted by: Krijack
How the bank bail out really works. - 01/22/09 03:23 PM
Well here is how it's been told.
Bank A is doing fine. Has some bad debt but has enough to cover it. Goes to Fed's, shows how bad it is doing and gets $200 million dollars of the bail out money. Takes money and makes bid on smaller bank B. Bank B has more bad debt so Bank A needs to up reserves. Bank A stops making new loans and starts calling loans in. Bank bail has exact opposite effect than was intended.
I have heard this story told to me about 2 of our local banks.
All this is rumors, but I do know that my main client had all his loans called this week. Up to then his banker was telling him he was his strongest builder. Never missed a payment, was moving product, and has almost no standing inventory.
The bank knows that by calling one of his big loans they probably will end up getting the subdivision of lots. They don't seem to care. My guess is that they figure they can go back and hit up the fed's for more money by showing it as a bad debt quicker than they can hope to get the builder to pay it off. Since they need cash, they are going this route. Doesn't matter if the loan is up to date or being paid on time. Pretty scary if that's really whats happening.
On a side note, if anyone has a couple million to lend on a good commercial project, 50% preleased let me know. We are now searching for new money sources. Also need money for construction loans, probably 50% loan to value if we are given our land values. Thanks.
Bank A is doing fine. Has some bad debt but has enough to cover it. Goes to Fed's, shows how bad it is doing and gets $200 million dollars of the bail out money. Takes money and makes bid on smaller bank B. Bank B has more bad debt so Bank A needs to up reserves. Bank A stops making new loans and starts calling loans in. Bank bail has exact opposite effect than was intended.
I have heard this story told to me about 2 of our local banks.
All this is rumors, but I do know that my main client had all his loans called this week. Up to then his banker was telling him he was his strongest builder. Never missed a payment, was moving product, and has almost no standing inventory.
The bank knows that by calling one of his big loans they probably will end up getting the subdivision of lots. They don't seem to care. My guess is that they figure they can go back and hit up the fed's for more money by showing it as a bad debt quicker than they can hope to get the builder to pay it off. Since they need cash, they are going this route. Doesn't matter if the loan is up to date or being paid on time. Pretty scary if that's really whats happening.
On a side note, if anyone has a couple million to lend on a good commercial project, 50% preleased let me know. We are now searching for new money sources. Also need money for construction loans, probably 50% loan to value if we are given our land values. Thanks.
