Tuesday, August 25, 2009

Are Banks Lending Again?

Is it possible that banks have been increasing lending?

I do not have hard evidence, and most of the news I read continue to talk about unwillingness of the nation's banks to lend to businesses and consumers. But I have this distinct feel that the money that's been stashed away at the Federal Reserve as excess reserves has been on the loose (albeit very slowly), say for about a few months.

Here is anecdotal evidence that I suspect the money may have gotten loose...

Anecdote 1: Bank of America advertisement
B of A seems to be back heavily advertising their mortgage products on TV (I heard it from people with TV). I saw their ad myself on the Internet several weeks ago, inviting the home buyers and people who want to refinance to contact them. Up to $3 million dollars, no less. That means jumbo loans are back. For quite a while, there was no jumbo loan available here, and that at least partly contributed to pricey beach properties in multi-million dollar range not moving. (Here's B of A web page that says jumbo loans up to $3 million.)

Anecdote 2: Leveraged loans are back
See my yesterday's post. Big national banks like J.P. Morgan Chase, Bank of America and Citigroup are rushing to finance leveraged deals again. In the case of Warner Chilcott, the combined total loan amount of $4 billion may seem tiny, but I suspect that's because of the government rescue and stimulus packages ever since last September - they carry price tags above $700 billion, and by comparison $4 billion loan looks small.

Anecdote 3: Cup and handle formation in M1 Money Multiplier?
I have no idea if one can treat that kind of index as if it were stock price chart. But if I do treat it that way, what I see is a "cup and handle" breakout about to happen. (The chart was created using St. Louis Fed's FRED. Data is from FRED, too.)

And indeed, the M1 Money Multiplier has been increasing since May this year, crawling back to 1, backing my suspicion.

The money multiplier could snap back hard, particularly because the drop since last September was so severe. If that happens, we can forget about deflation.


Post a Comment