The economy

[Finglefinn]

I heard that SBA loans were tightened up and harder to get too. Is that true from your experience Fingle?

No way. SBA lenders are falling over themselves to put loans on the books right now. SBA loans typically have higher floating interest margins than conventional commercial loans, which is also a function of risk. Most bank's net interest margins are getting squeezed right now. The average SBA loan rate is Prime + 2.25%, where a solid conventional commercial loan is Prime + 1%. Risk associated with SBA loans are wysiwyg. That's why they are 75% government guaranteed. 25% after liquidation exposure is hardly a risk at all. Especially since the SBA's guarantee limit is $1MM. You maximum SBA loan, if you are a prudent banker, would be $1.33MM.

Also, SBA loan fees to the originating bank are limited, which is good for the borrower. For example, if the average conventional commercial loan has a 1% fee, an SBA packaging fee is 0.25%. The SBA doesn't even let you call it a loan fee. Loan fees are strictly prohibited. However, the borrower does have to pay the SBA guarantee fee, which varies depending on the length of the loan term and can be fairly expensive. But the SBA also lets the bank finance that fee, so it's not an out of pocket cost to the borrower up front.

[Finglefinn]

And I just wanted to add that despite being taxed just the same as everyone else in the country, the House and Senate bills specifically exclude me from any refund, so I hope you all choke on yours.

Dd

I'll send you half of mine so that you feel better Dd... uh wait, nm. I don't get one either

[Flunkie]

The Federal Reserve is doing the only thing it can to try to stimulate the economy and avoid a recession. The problem is that their ability to make a sudden and dramatic impact is diminished by the weak dollar. Then there are the multitude of bad reports that come out each day showing weak consumer spending and weak sentiment. The rebate thing Congress is doing will probably help somewhat, but for the longer term, the only thing that is going to work is for Government to shrink in size and and reduce entitlements and spending. The automatic tax hikes in two years must be stopped or business' are simply going to quit expanding in the US, plus each tax payer will be losing an extra $1800 on average per year. The Social Security problem has to be fixed or it will simply begin eating up every last dollar until there isn't anything left to give in 20 years. Many states, like California, have serious spending problems which are now being magnified by the shrinking property tax revenues they had counted on. I predict major budget battles here in California this coming summer, there are already hints of the coming war on local talk shows when some of the Legislators show up as guests. The spending on Iraq isn't helping either.

I'm hoping for the best, but not very confident that either party will get serious work done if fixing the structural problems with the economy.

[Ddrak]

Yes, the Fed is madly trying to prop up the economy to avoid a recession - I'm just not sure it's worth it in the long term. Essentially dumping interest rates kills off investment (higher interest rates overseas), pushes up inflation (by increasing the money supply) and drives the dollar down further which brings about longer term problems and a deeper crash when it all catches up. Rebates from Congress don't really help at all - again it's the same thing as dropping interest rates because you're effectively borrowing money from future generations to pay the current one. A government can't really make a sudden and dramatic effect on the economy without causing deeper issues.

Taxes themselves are relatively neutral in an economic system - the killer is how they are spent and how the budget is balanced. Long term deficit spending is trouble - lots of it. You either have to cut services or raise taxes, and either solution is better than just ignoring the problem in my opinion. The automatic tax hikes should go on if the government can't show restraint in spending.

Cali is going to have a lot of issues, as is any state that depends on property taxes.

Honestly, I think the federal government should be required to balance the budget. I know deficit spending is useful at times, but I think we've plenty of evidence that governments are like kids with their daddy's credit card and have about zero fiscal responsibility.

Dd

[Partha]

I'm really hopeful the new Administration and Congress bring 'pay-go' back.

[Embar Angylwrath]

/agree

[Ddrak]

Interesting read from Reuters: link

I vaguely disagree with their focus on how people might lose their homes that they couldn't afford in the first place - that's not the real issue. The problem is the banks lose a truckload of money by foreclosing and forcing a bankruptcy. It's their own fault, but it ain't pretty.

Dd

[Finglefinn]

You're right Dd. If you lose your house because you bought to much or you've spent all your equity, you hand the keys back to the bank and go rent a place. If a bank loses enough money, the Feds will shut them down and lots of people lose their jobs. Banks going under is much more damaging to the economy.

[Embar Angylwrath]

What complicates this, really, is that banks often don't hold uncontested title to the houses. If they did, they'd be working to restructure the loans, and keep people paying the mortgage. It might be less than what they want, but it would be more than what they'd get on a forclosure sale (if they can even sell the house)

What many banks own are shares of a mortgage bundle. They don't own the entire note, but only a certain percentage. Its a way of minimizing risk, but it clouds the ownership. The dirty little secret in banking is that thousands of homeowners could simply stop paying the mortgage, and could successfully challenge any foreclosure, because many institutions that purport to own mortgage, really only own a percentage, and therefore don't have complete title. If they don't have complete title, they can't foreclose.

Some homeowners have been successful doing that already.