Tigerhawk has some interesting comments, concluding with this:
…This exposes the inherent tension between the “stabilization” objective of the TARP and the stimulus objective. Pushing banks to make unprofitable loans in order to stimulate the economy is not going to make people who might lend to or invest in banks more willing to do so. Credit will flow to worthy borrowers when banks can be certain that their loans will generate an actual profit. So the question is, why is that not happening now?
Well, the main reason that even healthy banks are not making new loans is that they can go buy perfectly sound corporate credits at substantial discounts to “par.” As long as you can earn a high return doing that, why would a bank go to all the trouble and expense of making a new loan at a lower rate?
So the next question is, why are perfectly good corporate credits selling at a discount? Because there is still, TARP and its foreign counterparts notwithstanding, less lending capacity in the world than outstanding debt. Too much capital has been destroyed too quickly. Banks need time to rebuild their equity capital, which is a proxy for lending capacity. Some of that will come from new investors, but since all the recent purchasers of bank equity have been run over, flattened, destroyed, the first and best source of new equity is retained earnings. Therefore, the faster that banks make money, the faster they will build their capacity to make new loans, and the sooner it will become profitable to make new loans to genuinely creditworthy borrowers.
I’m not certain this is accurate — any comments?
Comments? Certainly….banks are still not lending because there was no specific language or guarantees in the bailout bill which specified that, in return for their share of taxpayer funds, they were to return to the reason for which they exist: to lend money.
I find it ironic beyond words that the GOP rank and file are lining up (see Mittens Romney’s idiotic op-ed in the NYT lately) to ballyhoo the latest talking point with regard to the Big Three in Detroit: “let ‘em go belly-up,” after having just approved seven hundred billion dollars (as opposed to the $25 billion the automakers are asking for) with very, VERY few strings attached to prop up and re-inflate a fake economy built on overvalued credit default swaps which were often not even properly understood by those who both (supposedly) valued them, and those who peddled them. It was hot air and marketing, primarily, as opposed to, you know….something you can actually DRIVE.
However, it appears that, in America, we let the real economy die in favor of propping up the fake one, even when the fake economy’s bailout is 28 times that of the fake economy’s. Just yesterday, Paulson actually punted the entire rest of the money from the bailout down the road to the next administration, and reiterated his refusal to use any of it to directly support mortgage restructuring for actual homeowners, on the semantic nicety that the bailout shouldn’t fund “direct subsidies.” See, it’s nasty, reprehensible welfare when we bail out homeowners.
But no one ever seems to get around to asking (even rhetorically) whether all the corporate welfare we dish out in the form of R&D subsidies, loan guarantees, land and water grants at pennies on the dollar, and a host of other “incentives” to the largest industries (and that’s even under ordinary circumstances) isn’t weakening the moral fiber of our nation’s CEOS and large business interests by enabling dependency on government.
Funny, that.
I agree whole heartedly. The people who brought the world to the brink of financial disaster are now handed our trillions with almost no oversight. Why should I pay taxes?
If they don’t want to help the auto industry it is because it is union where Wall St. has no unions.
I guess the politicians would rather see 1million people unemployed , crash the economy into a depression and payout even more in unemployment insurance.
Remember when congress is in session neither your life, lberty or property is safe.
All I know is that I paid everything on time, bought in cash otherwise I didn’t really need it, went to school, have a great and stable job as a special education teacher and I cannot get a loan for a home for my family. Even the “Neighbor Next Door Program” doesn’t offer any assistance. So I guess that we will have to save up and buy in cash for the home we want because the banks are too busy buying up other things with the money that was supposed to be used to lend and free up the market. This is very frustrating and disappointing that someone that has good credit and history has no hope of owning a home due to greed and lies.