{"id":418827,"date":"2010-03-11T17:16:23","date_gmt":"2010-03-11T22:16:23","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/03\/11\/companies-net-worth-falls-again\/"},"modified":"2010-03-11T17:16:23","modified_gmt":"2010-03-11T22:16:23","slug":"companies%e2%80%99-net-worth-falls-again","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/418827","title":{"rendered":"Companies\u2019 Net Worth Falls Again"},"content":{"rendered":"

The Federal Reserve<\/strong>\u0092s latest flow of funds report offers a clue for those trying to understand why banks often don\u0092t want to lend to businesses: By some measures, businesses\u0092 finances are still deteriorating.<\/p>\n

In the fourth quarter of 2009, nonfinancial corporate businesses\u0092 net worth — what they have minus what they owe — declined 1.9%, notching its ninth straight quarter of contraction. The main driver of the drop is companies\u0092 real-estate holdings, which tend to include things like land, warehouses and offices that have kept falling in value even as residential real estate has rebounded a bit.<\/p>\n

One problem with the fall in net worth is that it can drive a wedge between the interests of a company\u0092s owners and its creditors. With less to lose, the owners might be willing to take on more risk in the hopes of making big gains. The creditors, by contrast, are more likely to take a bigger loss if the owners\u0092 bets go wrong. Consider, for example, a guy who bets $11 on a horse that pays double if it wins, $1 of his own money and $10 borrowed at 10% interest. In the best case, he makes $10; in the worst, he loses $1, with the creditors taking the rest of the hit.<\/p>\n

Those odds can make bankers wary of lending to anyone, a problem noted long ago by economists Ben Bernanke<\/strong> and Mark Gertler<\/strong>, who developed a concept known as the \u0093financial accelerator\u0094 to describe how such lending problems can aggravate economic downturns. If the latest data on bank lending are any indication, the accelerator could still be engaged: As of the end of 2009, total bank lending to businesses — known as commercial and industrial lending — was down 18% from a year earlier.<\/p>\n

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The Federal Reserve\u0092s latest flow of funds report offers a clue for those trying to understand why banks often don\u0092t want to lend to businesses: By some measures, businesses\u0092 finances are still deteriorating. In the fourth quarter of 2009, nonfinancial corporate businesses\u0092 net worth — what they have minus what they owe — declined 1.9%, […]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-418827","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/418827","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=418827"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/418827\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=418827"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=418827"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=418827"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}