Now that a new year has begun, everyone is eager to start fresh, but last year lingers so I will start with a few financial definitions. If you like, please use these terms in your own way and see how much better you feel.
LIQUIDITY
This is a new term for debt. If you are broke and are out of cash, borrow more money and you now have liquidity. For example, AIG now has 150 billion in liquidity.
TRANSPARENCY
This is a new word for honesty. For example, General Motors financial statements are not transparent or Steve Jobs and Apple lacked transparency about his health so that the firms stock would not crash.
Many Financial analyst on CNBC and Fox use these terms so that they because they sound sophisticated.
LIQUIDITY
This is a new term for debt. If you are broke and are out of cash, borrow more money and you now have liquidity. For example, AIG now has 150 billion in liquidity.
TRANSPARENCY
This is a new word for honesty. For example, General Motors financial statements are not transparent or Steve Jobs and Apple lacked transparency about his health so that the firms stock would not crash.
Many Financial analyst on CNBC and Fox use these terms so that they because they sound sophisticated.
So lets start where we left off and offer financial solutions that will tricke down to my freinds.
I expect the Small Business Administration to expand access to the 7A and 504 loan programs in order to spur liquidity to small businesses. If you recall, 70 percent of employees work for businesses that employ 100 people or less and this is where the recovery will start.
I expect that the banking and mortgage industry will suspend the use of credit scores in the underwriting of loans and return to the basic use of the debt service coverage ratio. Any banker or mortgage professional can site horror stories of people with recent bankruptcies and a 750 score while borrowers with no lates score 550. Bankers will return to using the CAMEL rating system for all borrowers.
THE GOOD KING GEORGE
I expect the Small Business Administration to expand access to the 7A and 504 loan programs in order to spur liquidity to small businesses. If you recall, 70 percent of employees work for businesses that employ 100 people or less and this is where the recovery will start.
I expect that the banking and mortgage industry will suspend the use of credit scores in the underwriting of loans and return to the basic use of the debt service coverage ratio. Any banker or mortgage professional can site horror stories of people with recent bankruptcies and a 750 score while borrowers with no lates score 550. Bankers will return to using the CAMEL rating system for all borrowers.
THE GOOD KING GEORGE
3 comments:
Right on King George Happy New Year
For those of us who aren't too savvy in financial lingo, can you explain the term,"debt service coverage ratio?"
Many thanks King George.
Happy New Year. A debt service coverage ratio is the ratio of your debt to your income. If your monthly income is 100 dollars and your total monthly debts are 40 dollars, then your DSCR is 1.6 or you can also say that your debt to income ration is 40 percent. Many Bankers abandoned these calculations and relied totally on credit scores to give credit because they relied on stated income instead of actual income. That is also one of the main causes for the extended credit crises because lenders and bankers forgot how to actually analyze credit risk.
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