Can’t We Get a Loan?

Yesterday and today I’ve heard news “experts” tell me people can’t get loans these days. But yesterday’s mail included two credit-card offers. And today’s post brought me a home-equity loan offer.

These events seem contradictory. Which means somebody is lying, or at least overlooking something. Let’s apply some basic economic principles.

People want to borrow money. It is human nature to desire more than our current means allow. That’s why we hunt and gather, work and save. Whether our wants are allegedly “empty” consumption, or to productively apply talent to our dreams, we need to draw on savings. When our own savings are not enough to meet our desires, we negotiate to use the savings of others. We look for loans.

On the other side, people are in business to make those loans. Gatherers and savers don’t have to just sit on their fruit hoping it won’t rot. They can use it to help others work. One way some folks apply their talent is to pool money, assess risk, and lend with the intent of collecting a fee for the use of money. Those with money want to put it to work.

Any temporary uncertainty between banks will not change human nature or economic principle. Coyote illustrates :

Lenders have to lend, just as much as borrowers have to borrow. I know most people understand the "borrower" part of this phrase, but they seem to act as if lenders are somehow only putting their money on the street as some sort of charitable activity, and if we don't sufficiently kow-tow to all their needs, they will run away and never help us all again.

The fact is that people with large pools of money -- banks, pension funds, insurance companies -- HAVE to lend. And in a time where stocks are dicey, they probably have more, not less, cash than normal they want to lend, much of it short-term. Now, they may be temporarily scared off from doing so for a few days or weeks as they try to assess what is safe and what is not, but they can't stick their money in a mattress or buy tons of gold or invest in ammunition and run for the hills. Banks have to pay off depositors; insurance companies often aim to break even on premiums and payouts and make their money on investing the cash in between; pension funds can't make their long-term obligations without making steady returns.Their very survival, in many cases, depends on making continuous returns off their free cash.

The news “expert” sounds like a liar. But one out pops into mind. Due to sound-bite reporting, we did not hear exactly who couldn't get loans. Those with crappy credit or weak balance sheets might have a harder time borrowing. Or, more likely, will have to pay significantly higher interest.

The price of money is going up. But that’s very different from being unable to find money at any price.