- Hirschhorn: Risk-Averse Traders
- Roginsky: A Funny Thing Happened on the Way to Financial Reform
- Downturn is Prime Time for Airport Infrastructure Projects
- Busch: Pressure Builds and Expands For Chinese Trade War
- Tamminen: Carbon Insurance For Your Car May Be Down The Road
- Busch: Another Obama Opportunity
- Farrell: Retailers?
- Schork: Nat Gas Bulls Need a Snow Day
- Schork Oil Outlook: Nat Gas Bulls Didn’t Stand A Chance
- Farr: An Extended Period—No Fat Lady in Sight
MOST SHARED
- CNBC Video: Warren Buffett & Bill Gates - Keeping American Great
- CNBC TRANSCRIPT: Warren Buffett & Bill Gates - Keeping America Great
- Has Twitter's Finest Hours (Seconds) Come and Gone?
- China's Role as Lender Alters Dynamics for United States
- Israel Going Green
- Microsoft's Bill Gates Praises Apple's Steve Jobs For 'Saving the Company'
- U.S. Stocks Rally for the Second Straight Week
- Dollar is Not Plunging—So 'Calm Down': Market Strategist
- Strategists Say Markets Have More Upside — But How Much?
- Hirschhorn: Risk-Averse Traders
- Roginsky: A Funny Thing Happened on the Way to Financial Reform
- This Year's Biggest Thanksgiving Leftover: Cash
- TV Series Inks Unique Deal For Fight
- First Time Buyers Rescue Housing: Realtors
- Dollar General Trades Higher After Its IPO
- China: Low US Interest Rates Threaten Recovery
- Hedge Fund Billionaire Paulson Reports New Citi Stake
- White House Plans to Freeze Spending to Cut Deficit
- Cramer: 5 Earnings Reports to Watch Next Week
- Court Rejects 'Clawbacks' for Alleged Stanford Victims
- Cities With the Most Home Price Reductions
- Tax Credit Sparking First-Time Home Sales: Realtors
- Investors Cut Back US Stocks for Bigger Growth Abroad
- This Year's Biggest Thanksgiving Leftover: Cash
RSS FEED
CNBC Guest Blog
Text Size 
Patricia Chadwick
Founder and
President
Ravengate
Partners LLC
It is evident that banks and finance companies are doing everything in their power to rebuild their balance sheets.
In an effort to lower their own borrowing costs, they are looking to the Federal Government for guarantees. They are actively engaged in the business of shrinking their own balance sheets, i.e. reducing their loan portfolios. And in the process of trying desperately to survive and eventually some day to thrive once again, they are abrogating the very rationale for their existence.
They might as well simply hang out a shingle that says: Not Open Today (or Tomorrow or who knows for how long).
But the entire economy is not dead and while the recession is severe and will likely last longer than most we have experienced, there are hundreds and thousands of real live companies in the US where business may be down but it is still very much alive. Those companies are not trying to shrink their balance sheets because they have perfectly fine balance sheets. They are not going to the Government for help because they don’t need to.
All they need is a neighborhood bank or a finance company to make them a loan and continue to do business with them now as they once did in both good economic times and bad. But the shingle says: Not Open Today (or Tomorrow …….).
This situation has been going on for nearly six months now, and it is in itself exacerbating the economic crisis, deepening the recession and causing once healthy companies to fail. Credit used well is good and needed for economic growth. Credit denied to good companies is seriously bad for the economy. At times it seems that there is no exit on this dead end street of capital denial.
But capitalism has a way of finding solutions and a new class of lenders is emerging, namely the pension plans and insurance companies who need to own in their portfolios the long term debt of healthy companies, even companies that are not AAA rated, yes even junk bonds. The Cablevision junk bond offering two weeks ago is a case in point. Yielding 11.3% for five years, it was oversubscribed and swallowed up fast by serious investors, not traders or flippers. Several investment grade utility bond offerings have similarly been swallowed up by long term buyers. These securities are not being traded because the buyers want to hold on to them till maturity. That is good.
Such response is much like the tiny green shoots that emerge from the forest floor after a ravaging fire. They are stronger than the fire that destroyed the giant trees. And they start the new cycle of growth that eventually rebuilds the forest. As more corporations needing capital discover that non-bank lenders exist, the pace of deals will accelerate and the banks will be less needed and more marginalized.
It will be a long process but the first signs have definitely shown up. That is good news for the U.S. economy in an environment of endlessly depressing news.
______________________________________
Patricia W. Chadwick has had more than 35 years of investment experience. She is the founder and president of Ravengate Partners LLC, a consulting firm that provides advice on financial markets and global economics.
Data is a real-time snapshot *Data is delayed at least 15 minutes