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Unread 28-07-2011, 10:09   #16
Thomas J Stamp
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Join Date: Dec 2005
Location: The Home of Hurling
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Quote:
Originally Posted by Thomas Ralph View Post
I read this suggestion all over the place, that businesses need credit to operate. It's getting parroted so much everywhere that people don't really challenge it. But by definition, if a firm is reliant on credit to stay in business, then it is not viable.
spoken like a true banker .

most businesses need overdrafts to tide them over when seasonal variants enter the equation and those overdrafts tide them over. this is the real credit crunch.

The banks are hording the money they have been given by the soverign, vie the IMF/EU loans. Despite what Brian Lenihan and Michael Noonan have said none of that money is earmarked or ringfenced to be lent, and any which notionally is, is governed by lending criteria which belong in fantasy island. This is because they simply do not want to lend or do not have it to lend, and they do not have it to lend because they want to hoard it so to be attractive to a purchaser (even at firesale prices like BoI this week).

Two examples. First a friend of mine worked in a travel agents, but a specialist one, high end. Bank overdraft was a massive €5k. Over the past few years they had put over a million a year in turnover through the bank account so i would guess the transactoin fees would have been lovely. Overdraft existed to keep the show going during the period when nobody would be booking holidays. AIB, for it was them, in 2009 decided that they didnt like giving credit to businessess whose customer base was discretionary, so pulled credit to this business, called in the over draft and converted it into a term loan.

At the same time, the Landlord insisted on his upwards only rent review. Upwards by almost 50%.

Right in the middle of the quiet period. So owner had no option but to lay off staff, and move the operation to her home. Her business is still going, but two staff laid off. They are on the dole, so their taxes are foregone and they need €180 a week from social wefare to keep going. The old office is still vacent, two years onwards. All for €5k, which AIB would have gotten back six months on.

Number two. I had a client three months ago looking for a mortgage for his house, refused by BoI and AIB. He had one third of the money himself. Was told that credit department wouldnt allow it in BoI, not given any reason by AIB. Unofficially told by his manager in BoI that they simply did not have the money. He is a consultant surgeon who has taken up a permanent contract in ireland having lived in the states for years.

Similar stories abound, in a situation where consumers are saving their money instead of spending it, and banks are encouraging it by high deposit rates, it results in shops, businesses getting less cash flow which means they need more liquidity funding from banks who are refusing to give it. Its a pincer movement, zombie banks killing the country.
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