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Why Is Fed Considering Paying Banks Not To Lend To Main Street
IBD ^ | 07/21/2014 | Mike Cosgrove

Posted on 07/21/2014 5:39:12 AM PDT by SeekAndFind

The Federal Reserve created a monster $4.3 trillion balance sheet, up by $3 trillion from 2008, through quantitative easing.

QE ends this fall. Now the Fed is trying to figure out what to do with this monster. Their thinking seems to be that they can maintain control over it by paying banks more money to not make loans.

So let's get this right. Households and businesses are attempting to borrow money from banks.

But the Federal Reserve may eventually pay banks $100 billion per year not to lend to Main Street. Politicians will have a field day with that.

The Fed's scheme could work in the short term, but its mechanism for controlling short-term interest rates and inflation will eventually end up in the wastebasket of politicians.

(Excerpt) Read more at news.investors.com ...


TOPICS: Business/Economy; Culture/Society; Government; News/Current Events
KEYWORDS: banks; fed; lending; mainstreet

1 posted on 07/21/2014 5:39:12 AM PDT by SeekAndFind
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To: SeekAndFind

Why pay them to do something they are already doing.

I just finished another fruitless effort to obtain business financing. Started with the bank I’ve been doing business with for 10 years, they laughed.


2 posted on 07/21/2014 5:41:14 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: driftdiver

RE: Started with the bank I’ve been doing business with for 10 years, they laughed

What exactly is the problem?


3 posted on 07/21/2014 5:42:45 AM PDT by SeekAndFind (If at first you don't succeed, put it out for beta test.)
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To: SeekAndFind

Well, that just means finding real investors.

That means taking a good hard look at King Solomon’s method of investing. Any small business that is taking out loans right now, at a non-fixed interest rate(seems to be the only kind available for the most part) is foolish.


4 posted on 07/21/2014 5:43:01 AM PDT by EBH (And the head wound was healed, and Gog became man.)
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To: driftdiver

In some ways you should be grateful, because what is coming isn’t going to be pretty.


5 posted on 07/21/2014 5:44:13 AM PDT by EBH (And the head wound was healed, and Gog became man.)
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To: SeekAndFind

Banks have never been easy for small business to deal with. Now they have set the borrowing standards extremely high.

You need perfect personal credit, perfect business credit, collateral up to the amount of the loan, and no real pressing need for the money.


6 posted on 07/21/2014 5:46:01 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: SeekAndFind

All part of the “O” plan to croak America!


7 posted on 07/21/2014 5:49:57 AM PDT by SMARTY ("When you blame others, you give up your power to change." Robert Anthony)
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To: EBH

Yeah I tried a couple years ago and am glad I didn’t get anything. Business is good but cash flow is the problem


8 posted on 07/21/2014 5:50:28 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: SeekAndFind

They’re forcing the banks to sit on the piles of cash that the Fed is printing.

Mark my words, they’ll relax the rules in November 2016, and the next president will have inflation that will make the Weimar look like a boom.


9 posted on 07/21/2014 5:55:46 AM PDT by IncPen (None of this would be happening if John Boehner were alive...)
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To: SeekAndFind

Well...”Main Street” is easier to control when it’s destitute, dont’cha know.

Like trying to herd the suburbs into the cities, “corralling the sheep”, so to speak.

Don’t forget trying to “register” all guns for easier confiscation.

Anyone who can’t see what their intentions are, is a fool!


10 posted on 07/21/2014 5:56:30 AM PDT by FrankR (They will become our ultimate masters the day we surrender the 2nd Amendment.)
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To: driftdiver

RE: You need perfect personal credit, perfect business credit, collateral up to the amount of the loan, and no real pressing need for the money.

OK, how many percent of small businesses are like that? PERFECT IN EVERY WAY?

One borrows because one needs the money for cash flow and perhaps to expand a business to attract and service additional customers.

If banks are reluctant to lend money even to a customer with a good 10 year record, how the heck is the bank able to pay their depositors interest? How does the bank even make a profit?


11 posted on 07/21/2014 6:09:10 AM PDT by SeekAndFind (If at first you don't succeed, put it out for beta test.)
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To: EBH
"Well, that just means finding real investors"

That's right.

There is a lot of money out there - it's just not dollars anymore. Look offshore for the money, and line up some states-side lawyers to help with the transaction. China, Middle East, etc. Don't bother with American bankers.

The US is becoming the Soviet Union. The government doesn't want to facilitate small enterprise - just own or control all enterprise through large entities that they can easily manipulate, aka "Big Business".
12 posted on 07/21/2014 6:09:46 AM PDT by indthkr
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To: EBH

~~~because what is coming isn’t going to be pretty~~~

Something I keep telling people around me. The look on their faces is the same as a deer in headlights. They simply don’t get it.


13 posted on 07/21/2014 6:13:02 AM PDT by F15Eagle (1Jn4:15;5:4-5,11-13;Mt27:50-54;Mk15:33-34;Jn3:17-18,6:69,11:25,14:6,20:31;Ro10:8-11;1Tm2:5-6;Ti3:4-7)
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To: SeekAndFind

There are stories that the Fed is paying banks not to lend money. The only option seems to be merchant loans or factoring. Where you borrow money against receivables.

Business equivalent of a payday loan. If you need $100k to cover payroll until the customer pays the options are limited.


14 posted on 07/21/2014 6:13:11 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: SeekAndFind
Loan growth has increased substantially recently.

This is a good thing considering that monetary velocity is at record lows:

QE - the mechanism for supplying liquidity to a deflationary market - is intended to improve the flow of money in the system.

The issue comes when the supply of cash becomes "enough" and deflation turns to inflation. It has always been known that the fed would have to "unwind" and that the timing of that unwinding would be critical. the "tapering" was the beginning of that process. The raising of interest rates to discourage more robust lending is the next step. the "excess liquidity" will need to be "drained" from the monetary systems. There are two ways to do that:

1) Sell the assets they purchased and remove the cash.

2) Slow the rate of monetary growth.

It appears as if this is the course of action the Fed is taking.

15 posted on 07/21/2014 6:13:43 AM PDT by Wyatt's Torch
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To: SeekAndFind

Remember, in 2008, banks didn’t want to loan to other banks. Because they were afraid they couldn’t get their money back.

And as we all know, nothing has changed since then. Except the debt.


16 posted on 07/21/2014 6:14:45 AM PDT by F15Eagle (1Jn4:15;5:4-5,11-13;Mt27:50-54;Mk15:33-34;Jn3:17-18,6:69,11:25,14:6,20:31;Ro10:8-11;1Tm2:5-6;Ti3:4-7)
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To: driftdiver

Yet another assault on the productive sector of society, like Zimbabwe kicking white farmers off the land.


17 posted on 07/21/2014 6:14:46 AM PDT by GeronL (Vote for Conservatives not for Republicans)
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To: driftdiver

I’m right there with you and totally understand!

My ‘micro-business’ that started 4 years ago this month has now grown into a real ‘small business.’ I am turning away work because I can’t meet the client expectation. There’s just not enough hours in the day and need to actually either hire with the help of an investor or find another working partner.


18 posted on 07/21/2014 6:16:49 AM PDT by EBH (And the head wound was healed, and Gog became man.)
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To: SeekAndFind

10 yr old company, profitable every year, last year was the best ever, already exceeded those numbers for this year. good reputation, diverse large base of business customers (no consumer). Demand for services is increasing dramatically because of govt regulation. Minimal debt and I pay my bills.

Yet I can’t get a loan.


19 posted on 07/21/2014 6:20:51 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: EBH

I chose to hire and that brings a big set of issues. I won’t ever take a partner. Too many horror stories some of which I’ve lived.


20 posted on 07/21/2014 6:22:11 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: SMARTY

“You need perfect personal credit, perfect business credit, collateral up to the amount of the loan, and no real pressing need for the money.”.........

Unless you are a “minority”.


21 posted on 07/21/2014 6:36:58 AM PDT by DaveA37
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To: SMARTY

“You need perfect personal credit, perfect business credit, collateral up to the amount of the loan, and no real pressing need for the money.”.........

Unless you are a “minority”.


22 posted on 07/21/2014 6:36:58 AM PDT by DaveA37
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To: driftdiver

Your statements remind me of the old joke, that a bank will loan you money, if you can prove you don’t need it.


23 posted on 07/21/2014 7:00:13 AM PDT by Dilbert San Diego (s)
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To: driftdiver

Sorry you are having trouble getting financial help you need with your business.

I’ve heard that there are investors out there who help businesses expand. I have no idea what their interest rates or expectations about equity sharing in the business are, but, maybe you will find someone that way to give your business the financial boost it needs. Sounds like, for whatever reason, that you just aren’t going to get a conventional bank loan/line of credit.


24 posted on 07/21/2014 7:04:29 AM PDT by Dilbert San Diego (s)
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To: Dilbert San Diego

They are out there but the ones I’ve found so far have pretty high expectations. They seem to be focused on the desperate businesses which I’m not.

They also look for companies larger than I am.


25 posted on 07/21/2014 7:22:01 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: driftdiver

Small local banks are probably the best avenue to try.

One of the main issues besides the actual value and potential of your company is .....your business is only worth what it is because YOU are there running it. Be able to show a “business plan” that includes what’s happens if your not there for some reason, how the business will continue to operate in your absence.

I see one post suggesting private money where I think they are referring to “Angel Investors” some of them are not so angelic and usually only want opportunities with huge upside then take too much in return. The up side is usually NO collateral but they really have to believe in you - again your “Business Plan”.

Private money is how many of us go these days - which can be fine depending on the terms you can get. For collateral they may want something not tied to the business - like your house or other property. Most want 1st deeds of trust.

The bottom line will be the true value of your business vs what you intend to borrow the money for and how you can demonstrate how that will increase cash flow and profits.

Good luck


26 posted on 07/21/2014 7:38:04 AM PDT by jcon40
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To: driftdiver

Tell them you need it to short sell gold...


27 posted on 07/21/2014 7:39:14 AM PDT by Axenolith (Government blows, and that which governs least, blows least...)
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To: All

We’re in the third biggest stock bubble in U.S. history

http://www.marketwatch.com/story/were-in-the-third-biggest-stock-bubble-in-us-history-2014-07-15?link=MW_popular


28 posted on 07/21/2014 7:42:24 AM PDT by Hotlanta Mike (‘You can avoid reality, but you can’t avoid the consequences of avoiding reality.’)
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To: driftdiver

“I chose to hire and that brings a big set of issues.”

IF your workers are “Employees” yes that comes with many issues. An alternative is to have contract labor but you must meet certain criteria to be able to do that.

Contract labor is where that worker operates as his own business and is responsible for his own taxes, insurances and all that goes with that.

The IRS provides a list of criteria / points that the worker must meet to be classed as contract labor but if you can qualify that way it saves a world of trouble.


29 posted on 07/21/2014 7:58:43 AM PDT by jcon40
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To: jcon40

Thanks, yes I used to use a lot of 1099s and subcontractors but found it to be problematic.

Its a delicate balance but I found employees tend to be more responsive to be where I need them when I need them there.


30 posted on 07/21/2014 8:04:57 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: jcon40

Funny, I havent had one bank ask me for a business plan yet. Not one.

I had three different people approach me a couple years ago.

First offered up 2.5million but wanted to be in charge of delivery but didnt know anything about the industry.

Second, wanted to take over sales and would pay me based on sales revenue.

Third, wanted me to bring in revenue sufficient to pay my employees and if I didn’t then I would pay him back.

So two of three were paying them to take the business and the other was a sure failure. Many investors just want access to your customer lists and not your business.


31 posted on 07/21/2014 8:08:27 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: driftdiver

Sounds like you have a good viable business and are familiar with 1099 vs real employees. I don’t see anywhere where you say what type of business you have ?

RE: the business plan - I’ve never had a bank ask for one either (usually only investors) however, the info that goes into a business plan can at times be essential even if just in a cover letter or some other format.

Sitting across the desk from a typical banker is the way it used to work. Seldom these days do you get a chance to meet the person who gives the nod for your loan so having a good presentation is important. Even loan officers in banks are a joke these days as either an underwriter or board has to review your viability. That’s why it’s good to take the time to write something out that says who you are, education, your age, experience, how you started your business, it’s performance and growth, profitability, competition, a comment or two on other emerging markets that may affect you, your goals and objectives for the business, how long you want to stay in or a plan to pass to one of your kids, why you need the money, how it will be disbursed, how you arrived at the amount you need and other such things to not only paint a good picture of you and the business but show them you can read and write effectively, deal with the burdens of government regulations (Don’t let them know your a renegade Freeper) lenders like conformists even when that may not be who you really are.

Again I suggest a small local bank - you can usually sit face to face with someone who can take measure of who you are and what you’re trying to do.
OR consider this:
Different banks, credit unions and savings in loan, pursue different markets ie auto loans, mortgages, commercial loans etc. If drift diver is not a hobby but is tied to your business you may want to pursue lenders who specialize in your market.

The big banks - BofA, Citi, Wells are F’er’s to the small guy.

Regional and local banks are the way to go but it has to be the type of loan that fits their portfolio.

In my area of California I have started several business ventures for example a farm I own - to borrow $ I use banks that specialize in Ag loans and lines of credit, I had to go to a small bank that was about 2 hours drive but got the $ no problem.

I had an engineering firm for many years that got one of the local banks in my town. I started a gas company and went to a lender that makes loans only in that market - again, got $ easy.

The same for buying insurance. different carriers specialize in specific businesses,


32 posted on 07/21/2014 10:26:56 AM PDT by jcon40
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To: All


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33 posted on 07/21/2014 10:28:34 AM PDT by musicman (Until I see the REAL Long Form Vault BC, he's just "PRES__ENT" Obama = Without "ID")
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To: driftdiver

A further note - I have one of the old lenders I used years ago actually call me to see if I wanted a loan because no one is applying for loans in what they specialize in (Commercial loans) - because people don’t think they can get them -

I just got a loan for a restaurant I own to do an expansion because it’s doing so well - got that loan from one of my customers. You may be surprised at what you may find in the private area by just putting the word out

People love to hear of someone doing well these days, in these markets. Many old timers aren’t getting sh*t for their rate of returns and are happy to help.

Though anyone who has money usually has it because they are smart and will want to have some sort of collateral or guarantee that you will have to choke down. Usually still beats dealing with the friggin banks


34 posted on 07/21/2014 10:33:39 AM PDT by jcon40
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To: jcon40

Thanks for the suggestions. I own a business the banks don’t really understand which I suspect is part of the problem. We do IT Security and Compliance consulting. Risk assessments, security testing (hackers), and breach response type work.

A big part of our business is helping hospitals figure out their HIPAA compliance. We work with hospitals, federal govt agencies, and a few financial firms although we started in the financial sector.


35 posted on 07/21/2014 10:38:43 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: SeekAndFind

Too much borrowing going on anyway...I’m with the Fed here.


36 posted on 07/21/2014 4:29:31 PM PDT by BobL
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