Whether you own a business or are just responsible for your personal finances at one time or another you probably have to try and borrow money. Today we are in a situation where the banks have tightened up credit.
What can you expect from lenders these days?
In a word, don’t expect much. Lending institutions have “circled the wagons” and gone into a defensive mode. If you are buying something you will need a larger down payment. If you are trying to get working capital you aren’t going to have as much for as long.
Now in addition to this general backdrop, President Obama has diverted his intensity from health care reform to banking reform.
A couple of days ago Scott Brown won the Senate race over Martha Coakley in a major upset that caught the Obama administration off guard. The White House finds itself having to back off the intensity of health care change.
However another field that President Obama came into office running against was the banking industry. You may remember just a year ago our economy was on the brink of disaster and Obama opted for a federal bailout. However many banks turned around and slapped Obama in the face by failing to follow the acceptable reform road and indeed gave officers ridiculously high bonuses. When they were called on it they simply said that they presumed the bailout would allow them to continue with their practices in every way including giving bonuses.
Now that the health care situation has been “cooled” a bit, the attention of the Administration is focused on the banking industry.
There is a committee that has been established to examine why there was originally such a failure. This committee is acting much more like an execution panel.
In looking at the early commentary of the banking officials, it seems they aren’t really taking any responsibility for the downfall of the banking industry rather, they are blaming government intervention.
So where does that put you? Whether you are a business owner or head of a family how should you handle credit? How should you invest in stocks?
The key words right now are liquidity (cash) and conservative.
There is a war going on between the government and the bankers and it would seem right now the government has the upper hand. However the same Republican impact that is affecting health care could influence banking.
Frankly you don’t know what the rules are going to be.
For purchases like homes and other properties or assets like cars consider larger down payments and shorter payment plans. If that stretches you too much then you may consider the fact that you should not make the financial move in this current environment.
For business people consider shortening your business cycle. Consider carrying fewer inventories and in fact focus your sales and/or service. In an environment like ours it may be to your advantage to eschew investments in high-risk investments.
In fact there is going to be change in the area of high-risk investments because the feeling is whether it is real or imagined that firms utilizing high-risk investments are getting away with murder.
So the situation then is conservative as I’ve said.
However something that needs to be considered is the recent Supreme Court Ruling.
The Supreme Court has just agreed in a 5-4 ruling that corporations can donate as much as they want to political campaigns. Guess whose candidates are going to get into office in the next few years?
Take a conservative tact right now but keep your eyes peeled for further political change.