The Motley Fool

Credit Watch

David Meier
November 10, 2009

1
The Motley Fool

Summary

• Credit continues to contract from both

supply and demand side
• Loan officers continue to report tightening,
but at a slower pace; few reporting easing
• Balance sheets are being repaired
• Government has to step in to fill the void
or GDP will contract

David Meier
2
The Motley Fool

Consumer Credit Contraction

Growth

Contraction

David Meier
3
The Motley Fool

Consumer Credit Contraction

Fewer banks tightening, but survey shows virtually no banks loosening

David Meier
4
The Motley Fool

Consumer Credit Contraction

Willingness seems
to be returning …

But the demand for

loans just isn’t there.

David Meier
5
The Motley Fool

C&I Credit Contraction

Growth

Contraction

David Meier
6
The Motley Fool

C&I Credit Contraction

Fewer banks tightening, but survey shows virtually no banks loosening

David Meier
7
The Motley Fool

C&I Credit Contraction

Fewer banks are

increasing spreads
…

But the demand for

loans just isn’t there.

David Meier
8
The Motley Fool

Conclusions
• Banks still don’t want to lend
– Can’t blame them when they can borrow short
from the gov’t to lend long to the gov’t toearn a
~3% spread with little risk
• Consumers don’t want to borrow
– Can’t blame them given their balance sheets
need to be repaired, too
• Exactly what happens in a balance-sheet
recession according to Richard Koo
– Balance sheets must be repaired
• Government must step in to prevent GDP
from contracting
David Meier
9