The Chefs Table

Getting your bearings straight. To state it simply the 4 C’s of credit are Character, Capacity, Capital, and Conditions. All of these factors are used in the evaluation by a prudent loan officer to develop an extension of credit from a lender to a borrower. Besides being the most important factor Character also hold the distinction of being the hardest of the factors to accurately measure. Capacity refers the borrower’s ability to repay the loan. Capital evaluation involves looking over the financial strength of the borrower by determining his or her Net Worth. Finally, the economy, national security, and unemployment rates are all Conditions that may affect a borrower’s ability to secure a loan.

In Irons – to head in the wind and refuse to fall off
Character evaluation is the single most difficult measure of a person’s ability to repay a loan. Has the person been bankrupt before, has their car ever been reposed, have they attended college, do they own a home? These are all questions, plus many others that a loan officer must use to determine if a person is of good character for a loan consideration. In my opinion character must be developed at a rather young age, and rarely develops past the stage of pre-pubescence. When morals, ethics, and values are instilled in a child, he or she will have the ability to make the tougher choices when they are older.

Waterline -the line along the hull at which a boat floats.
Capacity to repay a loan is the second factor in a loan evaluation. How much does the borrower owe, own, and earn? This is one of the problems associated with today’s housing crisis. In the October 13th 2008 issue of Time Magazine Niall Ferguson wrote “when families and banks tip into bankruptcy, more assets get dumped on the market driving prices down further and necessitating more deleveraging This process now has so much momentum that even $ 700 billion in taxpayer money may not suffice to stop it.”
So with our current figure of bailout dept reaching a trillion how can we expect to stay afloat?
Ferguson stated the cause “Much of the increase in debt was used to invest in real estate. The result was a bubble….as bubbles always do- it bursts” All of the mortgage telemarketers, Di-Tech commercials and snail mail loan offers in the world will not fix the storm that we have created for ourselves. How will the government fix it, sorry to tell you but they can’t. We have to start thinking a little more for ourselves before taking that “Live Now Pay Later” refinance deal that in some cases have place the value of the principle mortgage more than the home is worth. Why are some people sinking in this mortgage crisis, they have consumed so much that their boats waterline is now below sea level.

True Wind -the direction and speed of the wind felt when stationary, at anchor or on land.
Capital has been for years been based upon the value of one’s home, as collateral. Today though, one’s net worth is really based upon liquid assets, stock, bonds, and securities. It is for that reason that the credit market has been frozen, and yes beginning to thaw these past few months. With a dead housing market, diminished holdings no wonder we have seen so many commercials concerning selling and buying of gold. After all it is really the only stable capital .

Jibing – changing direction with the wind aft; to change from one tack to another by turning the stern through the wind; also spelled gibing.
Conditions have affected the credit market for the last few months and will continue to in the long run. Our current state, we are at war on at least two fronts, we are in the biggest economic recession since the depression, our invest securities market is less than half the value that it was last year, we are bleeding millions of jobs. Today Jeannine Aversa, an AP Economics Writer quoted Federal Reserve Chairman Ben Bernanke “Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Bernanke told the Senate Banking Committee. So just when the wind picks up, the seas are getting a little rough, the sails are trimmed and we have a new helmsman, gibe ho. Lets hope for the best. By way the markets did go up based Bernanke’s comments.

So what is the most important thing to remember about the 4 C’s of creditConcerning Consumer Credit- Common Sense

Resources
1. JoAnn & Jim Carland (2005) Catching the American Dream: New Venture Growth video series.

2. Fox, Elizabeth. “BASIC SAILING: Sailing Terms.” 1997. Rutgers University School of Communication

3. Ferguson , Niall. “The End of Prosperity.” Time Magazine 13 Oct 2008: 36-39.

4. Jeannine Aversa . “Bernanke: economy suffering ’severe contraction’.” Associated Press Tue Feb 24, 4:59 pm ET 24 Feb 2009

5. Rosland Capital Commercial