Remember when the bailout was supposed to unfreeze credit and get the banks lending again? Well, not so much. An interesting series of exchanges at The Agonist, starting with Paul Krugman earlier today. Stirling Newberry writes:
Krugman notices the bail out isn't working here:
But last week Joe Nocera of The Times pointed out [here] a key weakness in the U.S. Treasury’s bank rescue plan: it contains no safeguards against the possibility that banks will simply sit on the money. “Unlike the British government, which is mandating lending requirements in return for capital injections, our government seems afraid to do anything except plead.” And sure enough, the banks seem to be hoarding the cash.
That's why the government must adopt a policy of "too sick to lend is too sick to live."
Reader bex has an interesting comment:
Their actions are completely rational...
Unless the Fed places some restrictions on bailout cash, these banks are doing precisely what is in their own interests:
- Keep choking the credit markets
- Drive stock prices down
- Ask for bailout money from the feds
- Use it to buy companies at fire-sale prices
I'd do the exact same thing if I were a banker...
I think Numerian had the solution a while back in his "shot of adrenaline" post... Banks that don't start making loans will be nationalized. "Too sick to loan is too sick to live."
That should light a fire under their feet...
Well, look. Aren't we being too cynical? Surely Hank Paulson's golfing buddies would never engage in sttrategic behavior! Let's be reasonable, here.
What amazes me is that what's happening now will drastically constrain what the Obama administration is going to do on policy -- even assuming, with the most generous will in the world, that he wasn't going to try to govern from the center write all along -- and yet this huge, unfolding, and fast moving story of political economy is going virtually unremarked in the blogosphere; even though if Obama becomes a "virtual President" before being formally inaugurated, his first test (shock?) will be this crisis, and will come much, much sooner than we are imagining; perhaps within a month. Perhaps I should say second test (shock?); the first having been the passage of the Bush + Reid + Pelosi + Obama + Paulson bailout bill, and the manner of its passage.
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like the car companies,
I've read that the banking/wall st/etc bailout was specifically designed for these (chosen) companies to buy up other companies and not at all for "liquidity" or to "free up credit" in any way. That they never wanted any control of them, or to force them to do anything different in reality--except to take the problem off everyone's hands by helping some swallow others.
That our govt is now clearly marking the predators and prey--by selectively funding only some companies and not others. The auto thing now is even more explicitly designed simply so that one can swallow the other. (unlike the Airlines bailout/funding thing after 9/11, or previous car company help we've given, etc)
"couldn’t be clearer if they had taken out an ad."
-- "... In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.
...
“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. ...
It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction.
In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, “the government wants not only to stabilize the industry, but also to reshape it.” Now they tell us.
Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: “It couldn’t be clearer if they had taken out an ad.” ..." -- So When Will Banks Give Loans? -- http://www.nytimes.com/2008/10/25/busine...
"It’s Lending Time (Not!)"
"... Neel Kashkari, when pressed by Senator Dodd, said all the right things about wanting banks to make more loans. But at this points, we’ve learned that when it comes to the Treasury Department, actions speak louder than words. And everything Treasury has done makes it clear it is not pushing banks to make loans, no matter what it says publicly. Instead, outrageously, it wants banks to use the money to acquire other banks. Anyone who believed Mr. Paulson when he first went to Congress to plead for the bailout bill must be feeling like a fool. ..." -- http://executivesuite.blogs.nytimes.com/...
"folks" = banks
Note who those "folks" are - not the people struggling to pay their mortgages so they don't lose their homes. Those folks don't even appear on the radar.
Gah.
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We can't afford not to have single-payer!
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We can't afford not to have single-payer!
and they do this kind of thing naturally anyway--
no bailout or public funding is needed for one company to swallow another--ever. We're paying them now to do what they do anyway--as evidenced by Wells Fargo, and Sovereign, and others, who swallowed or were swallowed without a "bailout".
This is just another open theft of trillion(s?) of our money--and more welfare for corporations who don't need it at all.