Quote:
Originally Posted by dklassen
I say no to the second 350 billion and even a bigger no to the next 1 trillion.
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I don't know how it gets fixed without more money, but an important key to getting the economy moving again is to get the banks lending. It's those loans that provide the leverage for significant growth to occur.
Basically, what we have now are banks that are undercapitalized, even with the $350 billion already pumped into the system. Because they are on the regulatory edge of required capital ratios, they cannot afford to make anything except the most "sure thing" (lowest risk) loans. Clearly, with these economic conditions there are virtually no corporate borrowers who represent no risk--I can't think of even one corporation who might want to borrow that we could call AAA right now.
In the end, what has to be done is that are large chunk of the "toxic assests" have to be somehow taken off the books of the banks. That would immediately improve their capital ratios immensely and almost certainly result in their accelerated lending. The profit motive would kick in and get them lending again. That might be a less expensive "stimulus" alternative than others being discussed. Those loans are already trading at pennies on the dollar--the banks have already written off a lot of the principal amount due--so the government could buy them really, really cheap. The government wouldn't even have to hire any people to manage the loans. Just pay the banks a modest fee for continuing to service the loans until they are collected or foreclosed on and liquidated.
Getting the banks lending again might be the first thing to do before anything else. That might be the cheapest lubricant to get the economy turning again. That won't make the public happy when they donlt get a tax reduction (that would be the second thing I'd do) or all the states and cities who are lining up at the trough to get government-funding for infrastructure projects. But all that may not be necessary until it's determined that just getting the banks lending isn't working.
The only problem with this idea is that banks don't vote in elections, so other than the American Banking Association's political contributions they aren't all that popular with the elected legislators..