Monday, January 5, 2009

Banks’ ‘Catatonic Fear’ Means Consumers Don’t Get TARP Relief



Some banks may have needed more capital but most did not need the Treasury's infusions in order to lend. In fact, all the big banks--Citi, JP Morgan, Bank of America, Wells Fargo--were pretty much forced by the Treasury to take the money. Yet before the, "We're gonna make you an offer you can't refuse," action by the government, lending was not being constrained by an insufficiency of capital.

Rather, lending was and is being hampered by a weak economy, severe job losses and declining asset values.

Those are not things that will be fixed by giving fresh capital to banks. Nor will lending resume in earnest just because interest rates are historically low.

The key is to stimulate demand in the economy and the only way to do that now is via fiscal measures. The government must spend or give money to households and businesses--either directly or thru tax cuts--in order to prime the pump and get the economy moving again. Only then will credit begin to flow anew.

5 comments:

majestyx said...

The only big bank of the four you mentioned that didn't want to take the money was Wells Fargo. They only took it in order to keep up the smoke and mirrors game that Treasury and Fed are playing in concert with the FDIC so that people won't realize which banks are on the "trouble" list in order to avoid bank runs. To see how bad of shape the big banks were in, just look here: http://tinyurl.com/5quda2

There's another huge shoe to drop later this year when commercial property loans come due, much of which is tied up in JP Morgan and BoA. The banks aren't loaning the money in order to brace for the coming storm.

As for credit... would you give a heroin addict more heroin when he's in need of rehab? Would you give an alcoholic more booze when he's trying to clean up his act? Would you give a teenager without a license a Hummer when he previously wrecked his parents Range Rover? So why would you give more credit to a person who cannot afford to pay the money back?

I will agree with your other post, to a point. There was no sense in pouring all the money that's been pledged back into the banks who put us in the position we're in now. However, as I stated earlier, the smoke and mirrors must persist so that the rest of the world doesn't realize what's happening. If it was announced that every taxpayer was being given $20,000 in cash and HAD to spend that money, what do you think would happen to the value of the US dollar? So Paulson and Bernanke had to figure a cute way to do this (well, at least to spend that much money per taxpayer) and thus the TARP was born.

And the bottom line remains... where is the money coming from? China, the US's biggest creditor, has already stated the party is coming to an end: http://tinyurl.com/8bycnp

Mike Norman said...

majestyx:

You require more economics lessons than I could possibly give you and even if I had the time, or the inclination, it would still not help you.

"Where does the money come from?"

Your statement displays a complete lack of understanding of the paradigm that we are in. We are no longer on a gold standard or fixed exchange rate. The Federal Gov't of the United States can spend any amount of money it wants because it spends in its own currency. This applies to all sovereign currency issuing nations. Moreover, this spending occurs BEFORE the sale of securities and the collection of taxes, meaning that the money to buy gov't bonds and pay taxes comes from gov't spending itself. Furthermore, gov't spending "funds" the savings of foreigners, not the other way around.

majestyx said...

Right, Mike. That worked really well for Zimbabwe, Argentina, and the Weimar Republic.

I don't think it's me who needs an economic lesson.

majestyx said...

I don't know why I'm bothering to post anything here since you don't listen to anything anyone else says who doesn't agree with you. Viewing your appearances on Fox Business shows what a rude, angry, disrespectful, and clueless individual you are. Anytime someone says something you disagree with, you talk over them, laugh, call names and get louder. Wonderful way to get your point across, especially when your viewpoint has no basis in reality.

Here is just one example:

http://tinyurl.com/a7wxeh

YouTube reveals plenty of others by doing a search on your name.

Have a nice life in your alternate universe.

Mike Norman said...

Majestyx,

Please, I beg you, do not stop posting. Your comments are a wonderful source of comic relief to my highly educated and informed readers. (They tell me all the time!)

If you go they'll miss you dearly!

-Mike