I constantly hear that the credit freeze has caused small businesses to struggle because funds are not available to the average borrower. Banks are simply hoarding their cash and continuing to deleverage. I constantly have to remind myself that just because I know debt (personal or business) is not the answer, it certainly doesn’t mean everyone is as risk adverse as myself. Until recently, it was just the banks.
Chase is among the first banks to participate. Recall, JP Morgan Chase was one of the few banks to emerge from the financial crisis relatively unscathed. Although they took bailout money, they did so because at the behest of the federal government, not because they were hurting for funds. They got out of the subprime and exotic investments business before they risks became well-publicized. They rapidly repaid the TARP money to regain their freedom. Thus, it stands to reason that they believe they are strong enough to absorb whatever financial risks of lending money in this environment.
Could their willingness to lend money again suggest that Chase feels that worst is already behind us economically? Of course, this would be a very good sign. However, even if this does suggest that they are confident in our financial recovery, I hope that we never forget the financial lessons regarding the dangers of leverage from the “Great Recession.”
The old saying is: He who fails to learn from history is doomed to repeat it.
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Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.