Mortgage C.A.F.E.- Credit And Finance Expert

I hear this question a lot, being in the finance world, and everyone expecting the right answer.  To put simply: imagine you give your friend a five dollar bill to borrow, and overnight you'd like to see a one dollar bill added and given back to you the next day with your principal, making it 6 dollars in return.  It was worth it right?  Well, that's the problem globally right now.  Banks are not able to give each other a nice return on those "loans" and therefore are hoarding their cash and waiting.  If you gave your friend that $5 bill, and you KNEW the next day he could MAYBE give you back the $5, or maybe you would take a loss, you're not going to give the $5.  You're going to hold onto it because it's starting to be a rainy day.  You might just need that $5.

Well your friend represents those people in commercial, retail, etc that need money on loan.  If the condition of getting loan gets so restricted, he will take those loans to the private sector (Guido) as his only resource.  This is what makes the rich richer and the poorer even poorer.  If I own a coffee shop and had to upgrade the A/C for that shop, it would normally require a certain type of equipment commercial loan.  With a 700 score that should be easy right?  Wrong.  If the anticipation from the banks is that we're in a depression and coffee shops are like Starbucks and will suffer, they assume that you're on a downward slope regardless of your credit now.  They won't approve it.  Normally I would have paid interest of 6% for that commercial loan, but now I need to go to Guido, or get a hard money loan.  Starting rate is twice that of the free market.  So now I'm paying 14% for the same loan, and have bumped coffee prices by 25 cents to make up for the overhead cost of my shop.  Now less people will frequent my shop since coffee is a luxury, not a necessity and those that do go into my shop, along with myself are considered the low to moderate income base.  We suffer. 

Yes, that's a play on words, because Lehman is nothing like Laymen.  As a matter of fact, they are the complete opposite based on the payroll of Mr. Fuld.  I'm sure his previous employees (minus the golfing buddies / executives) are replacing some letters in his four letter last name right now.  As I'm sure they're feeling they've been given that F word in return from their company. 

I would remind you though, that those people that screwed up the accounting system that brought down Enron got punished in the end.  One committed suicide, one got his name nixed from the Katy YMCA here in Houston area, and then had a heart attack before serving what would have been a long sentence.  Some would say Lay got off easy.  Others got ostracized in their own community.  That's the bad thing about being rich.  Reputation means a lot when money is like water.  Where you sit on a board, the ease of getting one of your kids into Ivy League through donations, etc.  The invites to the yacht club events, the golfing tournaments.   All of that goes south when  you're known as a scumbag rich guy. 

So, as the sign in today's Chronicle behind Mr. Fuld held up by a lady who was blunt enough to hang it pretty close to his head said, "shame".  He's the one that has to answer to God for his greed and his company's greed.  We're the ones that will suffer in the long run, but he'll suffer for yesterday's lack of humility to having earned more than $500Mil in the last couple years while his company was crumbling.  He'll be the one with slashed tires for the next 8 months wondering which employee found his car...again.  He'll the be the getting those stares that say, "how could you."  Maybe he can live with it, maybe he can't.