Mon, 10/06/2008 - 5:09pm — lambert
Stupid question!
This is (really) because I don't understand finance. First, this from Bloomberg:
The discussions come as Fed and Treasury officials consider new ways of helping credit markets, where banks are hoarding cash and corporate short-term borrowing rates soared as bank bailouts spread through Europe.
So, if the banks are hoarding cash, then what good does it do to give them government money? Won't they just hoard that, too?
Hey, I hear the banks have stopped giving out toasters, and started giving out mattresses...
Which makes no sense, since if I have a mattress, I don't need a bank account, but what about any of this makes sense?
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The part where our gubmint gives our money to the banks.
It makes PERFECT sense if you're Hank the Bank Paulsen.
"You'd better get this straight. Wise up before it's too late." -- Sister Sledge
theoretically.....
So, if the banks are hoarding cash, then what good does it do to give them government money? Won’t they just hoard that, too?
banks will only hoard so much cash before they start doling it out. Of course, we don't know the limits of hoarding...but at some point, money will be so "cheap" that the short term "safe" loans that are at the heart of the "liquidity" crisis will be made again simply because bankers are greedy.
print more money & also buy more toxic
and worthless debt (now called "assets") from private companies and banks -- those are the ways they're gonna "help"
It's a "let's pour more money into the whole mess and see what happens" thing.
this from NYT explains better--
Fed Considers Plan to Buy Companies’ Unsecured Debt -- http://www.nytimes.com/2008/10/07/busine... --
"As pressure built in the credit markets and stocks spiraled lower around the world on Monday, the Federal Reserve was considering a radical new plan to jump-start the engine of the financial system.
Under a proposal being discussed with the Treasury Department, the Fed could buy vast amounts of the unsecured short-term debt that companies rely on to finance their day-to-day activities, according to officials familiar with the discussions. If this were to happen, the central bank would come closer than ever to lending directly to businesses. ..." --