What the Frock was the reason for TARP, TALF, etc. then?
Rahm Emanuel accidentally Tells the Truth and Shames the Devil:
“We have to get them off the sidelines and get them to play a more active role in our economic recovery,” Rahm Emanuel, the White House chief of staff, said on Sunday. “They play an essential role in helping the economy grow.”
Gosh, the Administration has noticed that the banks have been “on the sidelines” (read: reaping windfall profits from tax dollars and funneling those funds to themselves). Guess
Brad DeLong probably will be next. (At least, he seems savable.)
Subtle hint to the Chicago School (who are not savable): the reason we don’t believe Monetary Policy works is that it hasn’t worked.
(h/t Lance Mannion’s Twitter feed)
Bankers’ paradox (after meeting with Obama today):
1) we can’t loan to small business because the economy sucks, it would be too risky
2) the economy won’t be healthy until small business gets credit (see #1)
3) despite being risk adverse, we can trade billions in derivatives every day (see #1 and #2)
Did I miss anything?
Who are they going to lend too? We are already leveraged to the hilt. Homes are way overvalued (what was it ? 25% of ALL mortgages are underwater?) and their prices need to come down. We have 10% unemploymewnt with all signs pointing to that going up after Christmas. The Christmas retail situation has not been anything to write home about. holding off buying most of the presents for the last days before Christmas panic sales!
Heck the only home construction going on down here is either roof replacements (paid for by insurance) or some multi-million dollar homes. Everything else is at a standstill. I’m able to get off-the-books help really cheap for some minor home improvement work. Business giving free delivery and large discounts.
So exactly who are you going to lend too? Every business owner I know has retrenched. They are working many more hours since they won’t risk hiring in this economy until things obviously start getting better. They don’t need or won’t any loans.(And humorously most are Dems – but they wanted Clinton not Obama)
So that leaves all those not-so-great credit people, people who already have more debt than they should, and busineeses on shakey ground in this economy.
And thats before the posibility of huge overhead costs from Cap & Trade legislation and the Health Care Reform. And of course the Dems are once again talking about tax increases! Probably worse is the actual unknowing what’s coming. Even onerous taxes can be planned for and passed onto the customer…
So once again who should they be loaning money too?
As I tell everyone, pay off your debts, live frugally and save your money. If the economy goes south your ready, if it gets better your still better off and in a position to take advantage of oppurtunities to make money. No downside to following my advice!
Islam will change
“Mr. Obama, who has faced criticism from Democrats and Republicans alike for being too close to Wall Street,” NY Times
That’s a classic case of the pots calling a kettle black, no pun intended. Who could be any closer to Wall Street and its boundless cash resources than the whores of the Congress? Sorry to put working girls in such bad company.
“If Obama really wants bonuses to come down, he needs to propose regulations that will shrink the profitability of the financial industry.” K Drum
That’s an absurd idea. The best and fairest way to control excessive earnings is to put progressively higher rates on each higher marginal level of such income. Bankers are not the only people suffering from excess income. Tax the highest margins at a high rate and take the benefit out of absurd annual compensation regardless of source.
Well, here’s the thing Ken. “Transparency” seems to mean that nobody outside the banks and possibly a few government folks has the slightest idea how badly off the big banks are. But we know that they managed to lose a pretty much incalculable amount of money in 2008-2009. In the absence of information I think any cynic should suspect that their books are no more honest now than they were three years ago … albeit for different reasons. My guess is that they need at least twenty years worth of “record profits” just to return to solvency. In point of fact, the net profits for all US banks and thrifts in Q3 2009 was 2.8B dollars and I don’t recall reading of many significant write offs during the quarter. So I’m guessing that if everything goes swimmingly,US banks — in total — might be able to earn as much as $15B a year averaged over good times and bad.
Assuming that they are only hiding about a trillion dollars in bad paper, they should be in pretty good shape by 2070 or so. But, of course, they are probably going to end up eating $100-150B in Commercial Real Estate losses on top of all the other stuff I suspect they are hiding. Another decade. So, by 2080, they should be OK.
In reality, of course, the banks are not going to chug along for half a century digging themselves out of an ocean of debt by honest banking. You know that. I know that. The bankers know that. And the feds know that.
So we have the bankers cobbling together the windows dressing phase of a pump and dump scheme for unloading their sick businesses on the general public through stock offerings. And we have the feds trying to keep the fantasy that everything is basically OK alive and also whacking the banksters on the knukcles with a prybar to try to coax them into keeping at least some small businesses alive. And the public is all sitting around reading about Tiger Woods and other matters of great import.
Welcome to the American dream. And, I fear to the American version of the nightmare that the Japanese have been living for two decades.
What I don’t understand why no one realizes that the deleveraging of the US also applies to small business. Perhaps they will return to the way they did business in the 1950’s don’t expand until you have the cash in hand. It makes more sense that way especially if we fixed the tax codes preference for loans over equity.
From what I understand –
1) .Most subprime mortgages wer sold at teaser rates that skyrocketed to absurd rates after a couple of years.
2). Most derivitives were sold based on people paying their mortgages as “Insurance” in case they did not
3). Most folk who got subprime mortgages could afford them at the “teaser” rate as long as they had a job.
4). It was the bottom of the house of cards falling that brought down the whole thing as the rates jumped.
How come then is it that the Government buying all the subprime mortgages at some large percent of the principal amount would not keep the cascade of derivitives from being triggered by unpaid mortgages, making the much larger derivitive trade if not vanish at least not flop?
By the government repackaging the mortgage at a sustainable rate at or near the “teaser” amount, much of the economic collapse would not have happened in teh first place, and even those who lost jobs could be given the same forebearence commonly given to College loans, and have a lot more security than the college loans.
As for loaning banks money at rates lower than I could get in a savings account, is that not a problem with the terms of the loan? If I borrowed from the bank at 4% and put the money into a guaranteed savings at 5%, I think I would have the police at my door charging fraud.
His comments sure show a fundamental misunderstanding of how lending takes place. Reserves are not what they lend from but they are created AFTER they have loaned to a worthy customer. The whole conception is wrong. Loans CREATE deposits. Investment CREATES savings. Most people have it backwards because they are speaking out of a gold standard/fractional reserve lending paradigm which is NOT operational any more and hasn’t been for 30+ yrs.
I really wish we could all get on the same page. We would be so much more effective.
The idea that the disaster would change Wall Street or change America is nonsense. Wall Street has the US economy in its talons and can’t be made to let go. There won’t be any “reform” to amount to anything; the super rich will just become super richer; only the “little people” will suffer as they always do, and be duped into thinking they deserve their lot. When the storm passes the only thing different will be that lots of small fry still won’t have jobs, or medical care, or decent salaries and the wars will still be eating up the budget, etc., etc. Obama has been Bushwacked. Poor sucker.
I agree that only a complete sucker would invest in US banks at the present time. Rotten to the core, I suspect. In addition what profit is made will go to bonuses and fat salaries for the bloated executives. (When a bank like Wells Fargo wants to sell you some more stock, preferring your money to its equity, you can be very sure it is overvalued. Otherwise they wouldn’t be doing it).
Now it seems as if there won’t even be an enlargement of Medicare. That would have done something for the “little people” and so it had to be stopped. If the plutocrats and profiteers can’t grind down the poor in the US, life isn’t really any fun for them. And life has got to be load of fun for the rich in the USA. They have pretty well gotten things so that the joke is always on those lower down in the income spectrum and this terrible move to expand health insurance for those who don’t have it would have not been in their play book. Hey, you know, as Marie Antoinette said so well “Let them eat cake”.
Re the Chicago School, Krugman has this on his NYTimes column:
Hoisted from comments on my eulogy for Paul Samuelson:
Samuelson was just another Eichmann. He is responsible for propagating a destructive economic dogma.
The scary thing is that there probably are a number of people in this country who believe that advocating Keynesian economics is a crime comparable to being complicit in mass murder.
Eventually businesses will see oppotunities to expand, and will likely approach those opportunities very cautiously, but there will be unmet needs and new niches.
Not everyone is buried in debt, inventories are low, and there will be areas of pent up demand.
Granted, it will be very tough to unwind the current negative psychology.
Miss Margery–You are harsh, very harsh on poor old Samuelson. Goodness me, he don’t mean no harm! And, the Great Krugman is just boring us again with his simple-minded morality. He keeps insisting that people in the money business should actually do the right thing because they know what it is, but don’t care. If Krugman is right, then that means….Oh noes, the banker people are bad people and Samuelson is their Prophet! Ya know, it’s enough to make a normal person seriously angry….Nah, can’t do that, now can we? We’ll just ask the bankers real nice and they’ll do the right thing. Right! That’s the ticket! /snark/
Mish has a nice little rant that is right on topic for this also…
Islam will change
I’m told that a lot of small businesses are seasonal and borrow to smooth out inventory peaks, off season maintenance that will be paid back out of Christmas, or harvest, ski-season revenues, etc. The problem, I’m told, is that the bankers, won’t loan to these businesses even though they have been doing so in past years and even decades..
I personally have never worked in such a business and couldn’t swear to their existance. Nor can I point to any actual evidence that creditworthy small businesses are being denied loans. But the story is plausible and I think that our current crop of bankers would sell their grandmother into slavery if there were a market for her, so I’m inclined to beleve the story,
You seem fixated on mortgages. Your initial comment and the link to Mish (which is mostly a link to CR) both have to do with mortgages. There is more to lending than mortgages. In fact, when speaking of banks, we aren’t in the realm of mortgage lending that often, since mortgage lenders won much of that business away from banks some years back.
Small businesses are apparently the weakest sector for employment in this recession, far weaker than is the norm in post-WWII recessions. The reason for that weakness is partly lack of access to credit. Getting orders in would probably help, too, but small firms don’t have the same access to capital markets as larger firms, so are mostly stuck borrowing from banks.
It is nice to know that none of the small businesses which have revealed their plans to you are thinking about borrowing to expand, but we must at least consider the possibility that those businesses are not a representative sample. We might also want to note that in Q3, there was a great deal of corporate debt issuance, but that bank lending fell at the fastest pace on record. Why small firms would not have the same appetite for borrowed money as larger firms is not entirely clear, so we might want to entertain the possibility that lack of access to borrowed money among banks’ business customers – including small firms – at least partly accounts for the disparity between borrowing in the capital markets and borrowing from banks.