Banking on a recovery

Recent revelations concerning the shortfall in funds that banks should have on hand to cover outstanding loans gives further worry that banks won't be lending to marginal customers anytime soon. Marginal customers are those with low profit margins and high capital investment requirements. It is widely accepted that trucking is, at best, a marginal industry. Reports of movement out of private carriage

Recent revelations concerning the shortfall in funds that banks should have on hand to cover outstanding loans gives further worry that banks won't be lending to marginal customers anytime soon. Marginal customers are those with low profit margins and high capital investment requirements.

It is widely accepted that trucking is, at best, a marginal industry. Reports of movement out of private carriage is evidence of the lack of capital available at reasonable costs. The purpose is to free up whatever funds are available for direct investment in core businesses and not the private fleet. While I do not have access to the data needed to confirm this, there is no logical reason as to why it would not be happening at this time.

As a result, the timing of the stimulus package and the stress test could not have been worse for the good intentions of jumpstarting the economy. The portion of the stimulus package that I refer to is the funding of “weakened” financial institutions. They are weakened because they took on loans and/or purchased debt instruments that raise the likelihood of default, more so than the banks were willing to report. As a result, there is now a need to restructure their portfolios to account for these risky investments, as well as a need to acquire capital to cover potential losses.

The good news? Mainstream financial institutions have the ability to acquire those funds by choosing to sell assets, switching preferred stock to common stock, and/or simply issuing new stock. The needed cash flow — in a relatively short period of time — would exceed the GDP of most nations.

The bad news? Once acquired, these funds become dormant. They must be held in place to ensure that the remaining portfolio does not bring the bank into a questionable financial status, with the bank's clients at risk of losing their funds. If there is a bank failure, most of the customer's funds should be secured through the FDIC. The number of accounts not covered by this insurance is miniscule. The loans that a troubled bank would have to unload would be sold at a discount, making the return to the buyer even greater; hence, more profits for the survivors.

More troublesome for trucking is the newfound conservatism among the remaining lenders. Which financial institutions are going to expose themselves to the wrath of public scrutiny over a loan portfolio that has borrowers considered to be high risk? The thought of having another stress test will bring out the erasers for most lenders.

The ability for “risky” (read: small business as well as trucking companies) companies to stay in business relies upon access to working capital loans. No loans means no growth.

I remain hopeful that the inventory drawdown and the rise in disposable income occurring this quarter will be enough to stop the loss of jobs and restart our manufacturing sector.

“Remain hopeful” is the key phrase. The key will be a continuing increase in consumer demand, which will need to be fueled by increasing the number of jobs; however, the majority of the jobs most likely to be created in the next nine months are not sustainable. They are not created from a basis of either increased productivity or increased consumer demand. These jobs are publicly funded for publicly targeted outputs that have little or no sustainable base. As a result, we will continue to see a recovery, but at a much slower pace. This will most certainly create issues as the deficit swells in 2012 through 2015.

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