One Has To Happen Before The Other

[Guest]

Here's an article from today's Wall Street Journal.

http://online.wsj.com/article/SB10001424052970203405504576599273589255198.html?m od=WSJ_hp_LEFTTopStories

Is it reasonable to think that the U.S. economy can begin to recover until the banks become healthy again? As a retired banker, I don't think so. Banks provide the "financial grease" (credit) that keeps the wheels of business turning. Until they're strong enough to begin to lend again, there is little that any politician from any party--jobs bill or no jobs bill--can do to crank up economic activity and reduce employment.

I read this article with interest because Steven Ross is one of the most successful businessmen in the world. He is also very generous, having donated well over $100 million to the University of Michigan. Michigan's top-rated business school is named after him. Frankly, I was shocked to learn that a guy this smart couldn't find any reasonable bank investments after a year of trying.

[Guest]

Here's an article from today's Wall Street Journal.

http://online.wsj.com/article/SB10001424052970203405504576599273589255198.html?m od=WSJ_hp_LEFTTopStories

Is it reasonable to think that the U.S. economy can begin to recover until the banks become healthy again? As a retired banker, I don't think so. Banks provide the "financial grease" (credit) that keeps the wheels of business turning. Until they're strong enough to begin to lend again, there is little that any politician from any party--jobs bill or no jobs bill--can do to crank up economic activity and reduce employment.

I read this article with interest because Steven Ross is one of the most successful businessmen in the world. He is also very generous, having donated well over $100 million to the University of Michigan. Michigan's top-rated business school is named after him. Frankly, I was shocked to learn that a guy this smart couldn't find any reasonable bank investments after a year of trying.I got to thinking about what I posted and I think it needs more amplification.

Cranking up the economic engine is a "circular" process. It's not just the bank's lending. There has to be demand for goods and services, which incents employers to hire more people who increase payrolls, which creates more demand which has to be financed by the banks. And round and round and faster and faster the economic cycle goes.

Government can't just come up with mechanisms to provide the banks with more capital and then expect them to lend it out. Unfortunately, there have to be borrowers whose businesses will be profitable enough that they can pay back the loans. In between is all that increased demand, hiring people, more spending, more demand and more profits stuff.

There are all kinds of examples of government doing this sort of stuff, where it worked and where it didn't. The CCC was pretty successful during the last great depression, as was the government-funding of the interstate highway system.

But more recently, lots of money was given to the big banks as "stimulus" money, which was used to strengthen their balance sheets so they could safely lend. But they didn't lend because they couldn't find creditworthy borrowers. The economy had weakened so badly that lending to most companies in that environment would have done little except create lots more bad loans for the banks.

The government's $500 million investment in Solyndra, the high tech green energy company, turned out to be a complete loss for us taxpayers. Why? Simply because the government employees who made the loan were inexperienced, maybe even incompetent lenders. They loaned lots of money to a company which was already on the skids when the loans were made. Then the government agreed to structuring the loans so that the owners of the company, a couple of private equity firms, got their money out first, before the government loans were repaid. That's lending incompetence of the first order, regardless of the explanations the politicians and bureaucrats give us.

So what can the government do to fuel the economy and then let the private sector get the wheels moving again? The only thing I can think of is to fund real, measurable projects that are needed. Investments in the infrastructure--roads, bridges, public transportation, communications networks, the electrical power grid--that kind of stuff. They need to make sure such projects are built in places where they are really needed and will be long-term enhancements to economic activity, not just politically-driven "bridge to nowhwere" projects. But if those kind of expenditures are made wisely, resulting in the hiring of lots of new people, that might be a pretty cost-efficient way for the government to incent the private sector to get the economic engine whirring again.

[Guest]

Bottom line the delay in the recovery is what economist refer to as "rationale expectations". Businesses do not know what to expect because of the mis-steps of the Democrats/Obama including ObamaCare, the EPA's damaging environomental regulations, Frank/Dodd financial bill. The temporary stops Obama uses such as reducing payroll taxes leaving business wondering.
They simply will not invest if they believe it will not lead to a respectble prediction of profitability

[Guest]

These programs of which you speak sometimes have nothing to do with value. It's can be all about payoffs and windfalls to the politically connected.

A bigger loan of $737 Million was given to a "green" company working on renewable energy known as SolarReserve. It just happens to be a company connected to an investment group named PCG Clean Energy & Technology Fund. PCG's number 2 is none other than Ronald Pelosi, the brother-in-law of Nancy Pelosi, the minority leader of the House of Representatives.

SolarReserves has another investor called Argonaut Private Equity. Steve Mitchell of Solyndra's Board of Directors also serves as managing director of Argonaut. This should enable both to recoup some of their losses.

President Obama is set to make a fundraising speech at the home of Tom Carnahan, who's family is prominent in Missouri Democrat circles, and he has been secured by the Obama campaign as its chief Missouri fundraiser. He is also the former president and now CEO of Wind Capital Group, a wind energy company that makes it corporate headquarters in St. Louis.

Last year, Wind Capital's Lost Creek Farm facility in northwest Missouri received a $107 million tax credit from the Treasury Department.

Tom Carnahan is the son of former Missouri governor Mel Carnahan and former U.S. senator Jean Carnahan. He's also the brother of current Missouri secretary of state, Robin Carnahan.

Is this a green jobs program or a "Democrats' friends and family rewards program".

http://www.weeklystandard.com/blogs/crony-capitalism-737-million-green-jobs-loan-given-nancy-pelosis-brother-law_594593.html

[Guest]

These programs of which you speak sometimes have nothing to do with value. It's can be all about payoffs and windfalls to the politically connected....Unfortunately, Richie, there are altogether too many examples of which you speak. Are the examples you cited accurately reported? It makes no difference to me. I believe your citations as you've reported them.

But when I said, "...They need to make sure such projects are built in places where they are really needed and will be long-term enhancements to economic activity, not just politically-driven "bridge to nowhwere" projects....", I meant it. None of the examples you cited appear to have been the type of project I believe might be of help in jump-starting the economy.

If as voters we can't rely on those we elect to high office to do any better than the examples you've described, then we ought to simply...and collectively...tell 'the electeds' that we don't trust them to make responsible decisions. And we ought not to give them any money with which to make decisions and "investments" as you have cited.