OIL=$115...what a bargain!...Brother can you spare some CREDIT?

Remember the good old days when oil was $100/brl. That was January 2008. Todays price $115 was eclipsed back in May of this year. Eight weeks later we peaked at $147. Even at todays prices, we are a full 60% higher than a year ago $73, up 15% ytd, & up 37% from February 2008 low $86. Lots of economic credit being given to drop in oil prices & hope that the weakness continues.

While the lower energy prices will help a tad, consumption & business expansion is being strangled by credit, access to it, less equity to draw against, tighter credit standards to qualify, more critical appraisal process of assets being lent against, & very heavy (unrefinanceable) debt load from the credit binge.

Just recently the major auto cos restricted or stopped completely leasing vehicles. That's 20% of the overall auto sales & 30-35% of the luxury segment. Morgan Stanley, JP Morgan, Bank of America, Wells Fargo, Washington Mutual, NationalCity, Wachovia, and many other banks have recently started freezing HELOC's & other consumer credit lending lines as well as pulling back form the business completely going forward. Amex is "reviewing customer financial profiles" in determining credit limits on its flagship card as balances have been steadily increasing over the past few months (those are the rich folks building up excessive unchecked debt).

A credit starved consumer cannot perform his duties. Businesses will be critically impacted by this restriction on consumption.

Banks are also tightening business credit. Banks are further tightening & raising the costs of business credit. That will have a direct result on overall economic growth, job creation, business & debt restructuring, etc.

While the market was celebrating over oils retreat to $115/brl, the FED reported what should have drawn the attention of the "bottoms in/look out above" crowd...

WASHINGTON (Dow Jones)--U.S. banks continued to tighten their standards on loans to households and businesses in the second quarter, said a Federal Reserve study that also shows that many banks think the credit tightening trend could continue into the first half of 2009.
"Large net fractions of domestic and foreign respondents expected their banks to tighten credit standards on all major loan categories in the second half of this year, and smaller, though substantial, net fractions of respondents expected their banks to tighten standards in the first half of 2009," the study said.

The Fed's quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices shows that demand for bank loans over the past three months continued to fall off.
Every quarter, the Fed surveys a panel of senior loan officers at major banks across the country. Fifty-two domestic banks and 21 U.S. branches and agencies of foreign banks responded to the survey.

Banks received the survey on or after July 10, and their responses were due July 24.

About 60% of the domestic banks surveyed reported having tightened lending standards to large and middle-market businesses. That's up slightly from what was reported in the last Fed survey conducted in April and released in May.

About 65% of the institutions, a percentage that is also up from the previous survey, also said they had tightened their lending standards on so-called commercial and industrial loans, also known as C&I loans, to small firms over the same period.

"Very large majorities of domestic and foreign respondents pointed to a less favorable or more uncertain economic outlook, their bank's reduced tolerance for risk, and the worsening of industry-specific problems as reasons for tightening their lending standards and terms on C&I loans over the past three months," said the survey.

In addition, a significant portion of the banks surveyed reported having tightened their lending standards on prime, nontraditional and subprime residential mortgages over the previous three months.

About 75% of domestic respondents, which is up from 60% in the previous survey released in May, said they had tightened their lending standards on prime mortgages. Also, six out of seven respondents that originated subprime mortgage loans, which is a higher proportion than what was reported in the previous survey, indicated that they had tightened their lending standards on those loans over the past three months.

Responding to a special question related to mortgage finance giants Fannie Mae (FNM) and Freddie Mac (FRE), about 30% of the domestic respondents indicated that their bank had securitized with or sold to the government-sponsored enterprises conforming-jumbo mortgage loans over the past three months and about 45% expected their bank to do so over the next six months.

Half of the surveyed loan officers with companies that didn't securitize or sell conforming-jumbo loans pointed to a lack of demand for conforming-jumbo loans at their bank. Still, about 45% cited the cost of the GSEs' guarantee fees or other pricing terms. Roughly 40% of respondents whose banks didn't securitize or sell the jumbo loans pointed to a limited number of mortgage applicants at their bank who meet the GSEs' underwriting criteria.

Turning to the results of the survey's consumer lending questions, about 65% of domestic banks indicated that they had tightened their lending standards on credit card loans over the past three months, which is up remarkably from the 30% reported in the survey released in May.

Additionally, "considerable fractions of respondents reported having increased minimum required credit scores on both types of consumer loans and reduce the extent to which such loans were granted to customers who did not meet their bank's credit-scoring thresholds," the report said.