Told You So (Again): Bank Lending

[AllentownJake]

Time for one of these....

According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace.

Gee, I wonder why? Here's what the Fed's spew has been:

Despite more than a trillion dollars from the Fed and from the Troubled Asset Relief Program, "the banking system has still not fully recovered," New York Fed President Bill Dudley said in a speech this week.

The real problem is that banks continue to hide bad paper, encouraged in their outrageous and indeed I'd argue fraudulent accounting by the government and Fed. By refusing to account for losses (such as blown real estate loans) they not only lock up inventory that should be sold off at the market price to a willing buyer (thereby deploying it productively) they also lock up credit capacity and raise everyone else's cost of credit in an outrageous cross-subsidization of blown loans with performing ones.

The solution today is the same as it was in 2007 and 2008, as I have written about repeatedly:

Force all institutions to recognize their marks. If this results in insolvency, so be it. Close those banks, including the really big ones, and sell off their assets into the market at whatever price they will bring.

The existing and sound regional and local banks, along with the credit unions, will step in to fill this gap. They will profit, the cost of credit for legitimate, sound borrowers will come down, the monopoly of big banks will be broken and while you're at it lock up those who cooked the books for violations of Sarbanes-Oxley.

But no! Both Congress and The Fed are more interested in protecting the guilty than resolving the problem and allowing the economy to recover. They have been bought and paid for, and continue to spout the lie that in playing "extend and pretend" we can somehow manage to paper over all the bad debt without assigning anyone the loss and the economy will recover like nothing ever happened.

Santa Claus only exists in fairy tales folks.


http://market-ticker.denninger.net/archives/1501-Told-You-So-Again-Bank-Lending.html

[ejpoeta]

1. and here's the thing about that...... as long as the banks think the government will bail them out

if they screw up, then they have no incentive to NOT screw up. If they are risking their own money they will be more careful... but it's easy to lose OTHER people's money. Instead of subsidizing stupid ideas, let's make these folks take the consequences of their actions. the rest of us seem to be doing that whether they get bailed out or not.

[AllentownJake]

2. Moral Hazard is the argument against helping homeowners

It looks like the middle and lower classes are the only ones who need to worry about a moral hazard

[HCE SuiGeneris]

3. What does your "Main" Street look like where you live?

Is it similar to this?