U.S. bank lending falls at “fastest rate in history”. I’m no economist so I don’t know, but it doesn’t sound promising.
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A little excerpt from Matt Taibbi’s article in Rolling Stone, explains it:
“The idea behind the flood of money, from the government’s standpoint, was to spark a national recovery: We refill the banks’ balance sheets, and they, in turn, start to lend money again, recharging the economy and producing jobs. “The banks were fast approaching insolvency,” says Rep. Paul Kanjorski, a vocal critic of Wall Street who nevertheless defends the initial decision to bail out the banks. “It was vitally important that we recapitalize these institutions.”
But here’s the thing. Despite all these trillions in government rescues, despite the Fed slashing interest rates down to nothing and showering the banks with mountains of guarantees, Goldman and its friends had still not jump-started lending again by the first quarter of 2009. That’s where those nuclear-powered balls of Lloyd Blankfein came into play, as Goldman and other banks basically threatened to pick up their bailout billions and go home if the government didn’t fork over more cash — a lot more. “Even if the Fed could make interest rates negative, that wouldn’t necessarily help,” warned Goldman’s chief domestic economist, Jan Hatzius. “We’re in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more.”
Translation: You can lower interest rates all you want, but we’re still not fucking lending the bailout money to anyone in this economy. Until the government agreed to hand over even more goodies, the banks opted to join the rest of the “private sector” and “save” the taxpayer aid they had received — in the form of bonuses and compensation.”
We shoulda let ’em bleed.
Yup. The “end of the world” they predicted would just have been the end of the financial world as they know and liked it. Tough cookies.
Bond traders will ultimately force sovereigns (or any other borrower) to pay for risky capital structures
US Treasuries will be where money flees as EU and China “unwind”
Various US states and cities need to go bankrupt to break the gvt worker unions and their pay/pension entitlements
A long, bumpy road ahead
Bright side is a rough US economy w/no new jobs likely means this commie, pro-tax, anti-profit regime will be voted out in ’10 and ’12
i dont buy this idea that banks are refusing to lend because they seek leverage for more government fat.
lending is down due to both a lack of demand and a lack of qualified lending opportunities. lending has also been slowed by the rapid decline in housing prices; the primary source of collateral for most small banking needs.
just think for a moment how promising our economy was prior to 2007; it was juicy. every other person had a need for capital and for the most part the lending opportunities during the period looked good. today that is far from the case. many banks limit their lending to real estate loans. given our present RE meltdown, why would/should banks jump back in with two feet on new origination?
a firm bottom in RE prices will spur banks to begin lending again in substantive ways. in the mean time, uncle sam is pumping out plenty of debt, so why not keep your powder dry and park your customer’s deposits in t-bills. part of the problem is excessive borrowing of the US government. it soaks up capital that otherwise may be used to spur private lending.
banks make money when deposits are put to use which can be accomplished by lending or investing. i just dont think there are mending good lending opportunities out there.
Thank you Cos Cobber. The drivel from Taibbi is ridiculous, and sad that people actually read Rolling Stone and believe that is a credible source of information.
A good analogy to whats going on in the lending world harkens back to Mrs. Nancy Reagan when she tried to fight a war on drugs by going after the supply rather than the demand side of the equation. Similar thing happening today, but in reverse- ie there is PLENTY OF SUPPLY BUT NO DEMAND from qualified borrowers. Simply lending money because someone wants it got us into this mess.
This isn’t rocket science. Stop looking for conspiracy theories.
“banks make money when deposits are put to use which can be accomplished by lending or investing.”
Borrowing from depositors at close to 0% and lending to the government at just 1-2% with no appreciable expenses incurred still still seems like a profitable trade when done at a large enough volume.
securitizations began replacing traditional bank lending years ago, gaining market share every year until the great implosion of 07-08…banks would much rather fleece customers with hidden (and not so hidden fees)…this is the low hanging fruit of consumer banking…and no one in the know actually believed the cock and bull story spewed by Hank and Ben that bank lending would actually increase…lastly, I can’t believe there are still people out there that can’t connect the dots between total financial collpase and wholistic sinking of the US (and many foreign) economy…please read the history of the Weimar Republic to see where that road would have taken us…
thanks polly; i couldnt agree more.
mazama, you are absolutely right about banks dumping deposits into us government debt. foreclosures need to level-then reverse and real estate prices need to stabilize. then and only then, can lending begin to expand again.
its a little mind numbing to listen to people try to connect tarp with the ability for banks to pay large bonuses. large bonuses are the product of a surprisingly strong employment market (for proven winners) and moreover, the substantive rebound in the stock market where many mega banks continue to trade with propriety funds which generated strong profits in 2009. if the banks fail to pay the going rate, then the talent moves across the street to the untainted shop. its that simple. no bank took tarp and then decided to pay themselves with it rather than lend it. the tarp money was too expensive to do something so foolish. plus, you cant pay yourself a bonus was a capital contribution without creating a pure loss on the books. in such an instance, you’d have nothing to show but a loss for the year.
for the record, while i dont like uncle sam dipping his fingers so deep, i’m on board with the general nortion of capping comp for tarp banks. however, once a bank has tarp repaid, then game on for comp.
if you find the level of compensation disgusting, then take a good look at baseball. the dynamics that make a-rod worth it are the same at any financial firm. the best avenue for curbing comp is to push legislation that keeps the financial markets open, free and generally competitive.
a rational discussion on the state of business lending: the banks are taking the right approach. it will make for a slower rebound from the economic crisis, but hopefully its a rebound that is more sound.
No TARP money = big bonuses anyway is not persuasive.
its anecdoctal, so aint worth too much, but my neighbor bailed from a top five bank this past fall for bigger dollars to establish a competing division at an untainted (ie non tarp) private equity shop (like blackrock) which is aggressively trying to soak up the ground receded by the ‘tarped’ ones.
there is one situation that i will concede on. the boa/ml bonus debacle was indeed enabled by tarp. i will give you that.
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