Combined Value of Leading Credit Sources

Today’s chart-porn is this depiction of the tightening credit cycle from a front page NYT article.  The chart itself was too salacious for the front page, and had to be buried deeper into the paper . . .

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1129_lend

chart courtesy of NYT

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Source:
As Lenders Tighten Flow of Credit, Growth at Risk
PETER S. GOODMAN
NYT, November 29, 2007
http://www.nytimes.com/2007/11/29/business/29lend.html

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What's been said:

Discussions found on the web:
  1. David Merkel commented on Nov 29

    Most of the decline is in ABCP, so the main fallout is to speculators and financial institutions keeping assets off the balance sheet.

    Aside from some high yield credits, most large non-financial corporations can get financing today. The NF corporate sector is a lot healthier than most other areas of the economy.

  2. seamus commented on Nov 29

    You’re implying that the NYT buries negative economic trends, correct?

    ~~~

    BR: No, I am explicitly stating that this chart-porn was way too sexy for the front page.

    Hmmmmm, two-on-one graphics . . . .

  3. VJ commented on Nov 29

    FLORIDA SCHOOL FUND ROCKED BY $8 BILLION PULLOUT

    (Bloomberg) – Florida local governments and school districts pulled $8 billion out of a state-run investment pool, or 30 percent of its assets, after learning that the money-market fund contained more than $700 million of defaulted debt.

    About $19 billion remained in the pool this week after the unprecedented wave of withdrawals, which came after the State Board of Administration reported its holdings of downgraded debt to Crist at a Nov. 14 public meeting of his cabinet in Tallahassee.

    The pool has invested $2 billion in structured investment vehicles and other subprime-tainted debt, state records show. About 20 percent of the pool is in asset-backed commercial paper, Stipanovich said at the meeting today.

    There is no liquidity out there, there are no bids” for those securities, he said.

    BLOOMBERG LINK

    BLOOMBERG UPDATE
    .

  4. Michael Donnelly commented on Nov 29

    OMG: that 3m chart can’t possibly be correct can it ?

  5. Estragon commented on Nov 29

    Michael Donnelly,

    Keep in mind that, as David Merkel notes, the vast majority of the drop was in short term ABCP not rolled over. With that gone, the bottom chart is almost certain to normalize quickly, especially if fed policy is anything like what’s implied by bond prices.

  6. s commented on Nov 29

    “C&I Loan Growth Sets Another New Record
    Total assets increased by a record $446.3 billion (3.6 percent), eclipsing the previous quarterly high of
    $331.6 billion set in the first quarter of 2006. Loans and leases accounted for more than half of the
    increase, rising by $231.8 billion (3.1 percent). After increasing by a record $51.2 billion in the second
    quarter, C&I loan growth set a new record of $89.5 billion (6.9 percent) in the third quarter. Three large
    institutions accounted for more than half of the increase in C&I loans. Residential mortgage loans
    increased by $50.2 billion (2.3 percent), the largest quarterly increase since the second quarter of 2006.
    Real estate construction and development loans increased by $16.0 billion (2.7 percent), the smallest
    quarterly increase since the second quarter of 2004. Despite the slowdown in construction loan growth,
    the number of insured institutions with concentrations of construction loans continued to increase. At the
    end of September, more than one in four institutions (27.4 percent) reported construction loan portfolios
    that exceeded their total capital. In addition to the growth in loans, assets in trading accounts increased
    by $78.6 billion (10.7 percent), and intangible assets rose by $25.2 billion (5.8 percent) during the
    quarter. Goodwill accounted for most of the growth in intangible assets.”

    FDIC Q report? What gives?

  7. bad home cook commented on Nov 29

    Gack! That’s an eye-opener. Why isn’t that front page news…?

  8. BBH commented on Nov 29

    Excerpt taken from Brown Brothers Harriman, Financial Markets Outlook by Charles H. Blood, CFA

    New York Times Front Page Article Gets the Credit Story Wrong

    Contrary to a story that ran today in the New York Times, credit for non-financial businesses in the United States has expanded at a robust double-digit annual rate in recent months (see BBH chart below). The Times article started with the observation that “Credit flowing to American companies is drying up at a pace not seen in decades”, and presented charts (see page 2) showing that such credit had contracted by 15% (not annualized) in the last three months. While credit standards for non-financial businesses have tightened somewhat because of the fallout from the subprime mortgage fiasco, the Times made the mistake of including asset backed commercial paper in its calculation instead of focusing solely on actual credit extended to non-financial companies. ABCP should be excluded because it is not a direct loan, but rather a source of funding to support loans counted elsewhere.

  9. peter from oz commented on Nov 29

    BBH they would say that wouldn’t they
    and Estragon hope you don’t have too many clients rolling over paper or drawing down on standbys just prior to 31/12 window dressing time
    might be a very quiet new years eve party at the big end of the hamptons
    rgds pcm

  10. Paul Jones commented on Nov 29

    Scary chart, Barry.

    I feel sick.

  11. S Topper commented on Nov 29

    What conclusions are being made here. 80% (4 out of the last 5 times) of the time this event has taken place, except for the most recent recession circa ’02, all other examples seem to show that when the 3 month change drops below zero, that is the end of the recession, which is determined later by the NBER. I’ll throw this out to your audience; Is this potentially with more research to back it up good news, or is this a spike or anomly that should be disregarded?

    st

  12. gaius marius commented on Nov 29

    While credit standards for non-financial businesses have tightened somewhat because of the fallout from the subprime mortgage fiasco, the Times made the mistake of including asset backed commercial paper in its calculation instead of focusing solely on actual credit extended to non-financial companies. ABCP should be excluded because it is not a direct loan, but rather a source of funding to support loans counted elsewhere.

    this has become epidemic — stripping out the elements of the situation that are unappealing and pretending that they somehow don’t matter, or pretending that a defaulted loan isn’t one because it’s called asset-backed commerical paper.

    financials are 22% of the cap-weighted s&p, account for 40% of the profits and represent the credit creation arm of the economy. if they suffer, we all suffer. even if they somehow take on much of the abcp losses, it will matter because “credit standards for non-financial businesses” will go to infinity as banks try to accrete capital and improve capital leverage ratios.

    moreover, frozen abcp is owned by normal companies, not banks — banks administer conduits and siv’s and have brought the things on balance sheet, but have no real obligation to bail out the owners of the frozen paper. when push comes to shove, that cash in the main isn’t coming back to the paper holders — and it will represent a capital loss to run-of-the-mill companies (and pension funds and so forth) who bought it.

  13. David commented on Nov 29

    Barry,
    The Fed rates are going down! The rate will go down fast to 3%! I told you, don’t fight the Fed.

    “We’re in the money, we’re in the money;
    We’re in the money, that sky is sunny,”

    “The rude sea grew civil at her song,
    and certain stars shot madly from their spheres, To hear the sea-maid’s music.”
    William Shakespeare

  14. Todd Mentch commented on Nov 29

    So has this been reflected in dollars terrible run since June/July – which is just now taking a bitof a breather?

    Or does this mean more to come?

  15. JJL commented on Nov 29

    This just in:
    AP
    Bernanke Caught in rare Gaffe
    New York-7:30pm
    Ben Bernanke during a break in his speech tonight, failed to key off his microphone during an exchange with an aid. Bernanke was heard by all 300 attendees to remark “I cannot believe these guys eat this spin up! Do you think the line about doing all that is necessary to ensure price stability is still good? Do we have enough Vodka for the flight tonight?”
    Attendees were aghast at the comments, but waited for the speech to conclude for any hint of a rate cut coming in December.
    Joe Schmoe reporting

    ABOVE IS A JOKE!
    Now quick quiz!
    Would a story like the one I fabricated above really shock you? The answer to that question tells you how silly things are by themselves without comic addition.

  16. Blissex commented on Nov 30

    I have been often stunned by how many financial quantities if plotted over decades show a sharp secular upturn starting around 1995. That is their trend slope almost double; look at these blu chip stock prices:

    http://finance.yahoo.com/q/bc?t=my&s=IBM
    http://finance.yahoo.com/q/bc?t=my&s=PG
    http://finance.yahoo.com/q/bc?t=my&s=KO
    http://finance.yahoo.com/q/bc?t=my&s=C

    Then this chart shows a colossal expansion of credit around 1995. Another chart I saw shows that there was a colossal expansion of stock purchases on margin around 1995. If one looks at the stocks charts above surges in volumes as well as price are readily apparent.

    So I think that the proximate cause for the enormous upsurges in many financial indicators has been an amazing, unprecedented expansion of credit starting 1995, and I have often had the impression that the series of bubbles in the next 10-15 years have been caused by a sudden surge, a wall of money trying to find targets.

    One interesting question would be to know who have been the biggest beneficiaries of this enormous surge in the availability of credit (and the lowering of its price, as interest rates have been insignificant or in real terms even negative for many of the past 10-15 years).

    The more interesting question is about the ultimate cause: what happened around or just before 1995 that caused or allowed an immense surge in available credit?

    I suspect there was some deliberate political intent behind that.

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