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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: mishedlo who wrote (37337)7/31/2005 11:35:35 AM
From: Ramsey Su  Read Replies (1) of 110194
 
Mish,

that is not how it works.

Banks can only lend if they have money to lend. Assuming deposits are not going to change that much, each dollar that they need to add to reserves is going to take away the funds they have available to loan out.

I do not remember the details anymore but I think it used to be like a couple of percents of reserve for performing loans, something like 8% for loans in default and 16% for REOs. So if the tide changes, banks are going to worry about meeting reserve requirements and have no money to lend regardless of credit quality.

They can, of course, sell the loans. I suspect that loans in the portfolios of misc lenders today are going to be severely marked down if rates and COF go up. New loans are going to be subjected to the sentiments of the MBS market.

As for borrowers, a credit worthy customer may be defined as one who has 3 or less foreclosures on their record. <gggg>

Ramsey
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