In the BT Capital Partners Fourth Quarter 2008 Newsletter, Jim Wheeler explores the impact that the deleveraging of Wall Street will have on the ability of banks to provide liquidity to main street.
An equally important factor that has not received much press is the paradigm shift in lending caused by the deleveraging of Wall Street. With all of the large Wall Street investment banks now conspicuously absent from the landscape, we have lost all of those major lenders who leveraged their assets 40:1 and who were willing to aggressively price car loans, credit card receivables, and home mortgages, based on their model of packaging them and selling them, without regard to credit quality, since they were backed with credit default guarantees. Those packages and re-sales are no longer viable. All of the capital that was available just months ago is no longer available, and most eyes are turning to the banks who are lining up to receive the TARP capital payments as the likely suspects for injecting capital into our economy.