Where Did All the Construction Credit Go?
Several trillion was destroyed by unpaid loans. Initially, the unpaid loans were almost entirely sub-prime residential mortgages but later included commercial mortgages and a long list of other loan types. The lost capital had to be written off by lenders with a sizable share covered by various federal agencies. This was borrowed money so it was not additional capital available to lenders in the aggregate. Some capital was also consumed by greedy fees pocketed by lenders.
In addition two other factors reduced available credit to construction borrowers. Aggressive new federal spending plans, including mortgage payment assistance consumed over a $1 Trillion. And lenders cautiously reduced their financial leverage. Each dollar of lender capital or deposits can now support less lending than before September 2008. The conversion of large investment banks to commercial banks reduced their leverage ratio from as high as 30:1 to about 10:1
Remain positive, the US economy along with the construction market will rebound eventually.
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