Begging for Borrowers

When the economy was lively and money was loose, bankers were only too eager to counsel their customers on the advantages of borrowing. When money tightened and the economy began to turn sour, bankers turned dour. As interest rates for loans rose dramatically, many a loan officer became severely selective. Less affluent customers were often treated like indigent in-laws. Now the situation has suddenly reversed. Bankers are loaded with relatively cheap and ready cash; it is borrowers who are playing hard to get.

Loan officers are warmly welcoming applicants who would not have got beyond the lobby only a few months ago. Bankers are again touting loan offers in splashy advertisements. One for Chase Manhattan Bank goes: "When you want to borrow money, your friend at Chase is the man to see. He can handle any-kind of loan you want. Big loans. Little loans. In-between loans."

Cheaper Mortgages. This abrupt turnabout was largely engineered by the Federal Reserve Board. Hoping to stimulate business, the Fed has been increasing the money supply at an annual rate of 5% to 6%. Instead of borrowing, however, corporations have been trying to clean up their debts and build their cash reserves. Speaking of 1970, James Howell, chief economist of Boston's First National Bank, says: "We damn near had a collapse of business-loan demand." Consumers have also been reluctant to borrow because they are worried about social unrest, the economy and rising unemployment, which has been unusually high among the traditionally safe middle-income groups. More and more people are putting off buying. Instead, personal savings are rising to record heights. The Bank of America, the nation's largest, has been swamped with deposits, which last year climbed from $25.5 billion to $29.7 billion.

To make borrowing more attractive, banks clipped their interest rates again last week. They reduced the prime rate for the most credit-worthy customers from 6 1/4% to 6%. The prime has been dropped eight times since March, when it stood at an unprecedented 8 1/2%. Six of the drops came in the past two months --a modern record. Big Manhattan banks reduced their rates on residential mortgages from 7 1/2% to 7 1/4%. Around the country, mortgage lenders are trimming their rates below last year's peak of 9 1/2% and accepting lower down payments. In order to keep in step with market trends, the Federal Reserve Board reduced its discount rate, the fee that it charges on loans to member banks, from 5 1/4% to 5%, the lowest in almost three years. The discount rate is unlikely to go down again soon. But nobody rules out the possibility of further cuts in the prime rate if borrowing continues to be sluggish.

Too Much, Too Long. In its fight against price rises, the Nixon Administration seems to have been too successful in dousing the nation's inflationary mood. Today, as the President aims for economic expansion, the job of reviving business exuberance is proving difficult indeed. "What is needed," says Walter Hoadley, chief economist of the Bank of America, "is a restoration of confidence, and we wish we knew when that will happen. People have had too much bad news for too long. There is still a temptation to wait."

There are reasons for optimism. The stock market, industrial production and personal income are rising; so are housing starts. But the University of Michigan's Survey Research Center, which polls consumers, reports that their confidence is at the lowest point since the surveys began in 1952. Economist George Katona, the director of the center, does predict that consumer confidence and spending will revive--but not before summer.

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