January 21, 2009
Tracing Bailout Money in the Banks: the Journalists are Asking the Wrong Question
It is good sport to call someone at the large banks that have received government bailout money and ask: "Were did the money go?" The right answer to a physical tracing question is "I do not know." It is the wrong question. Cash is fungible and not sensibly traceable physically. Cash used for one purpose frees up cash for another. The right question has to be "What did the bank do once it received the grants that it would not have done had it not received the grants?" Once asked this way the questioner would get a reasonable answer. Banks worried about capital reserves would be folly to lend more money in high- risk consumer or business markets, increasing capital reserve calculation problems; they sensible would buttress capital reserve ratios by holding the cash (or securities that count as cash) or using cash to pay off liabilities that count against the capital reserve. Why pillory banks for doing what is prudent in a down economy? They have be critizied for making excessive risky loans to "people who could not pay" and are now lending very, conservatively. If the the government wants more risky loan made, the government will have to do it (nationalizing a private bank to use as a conduit or using the Treasure dollars or the Fed's reserves).
January 21, 2009 | Permalink
TrackBack URL for this entry:
Listed below are links to weblogs that reference Tracing Bailout Money in the Banks: the Journalists are Asking the Wrong Question:
Oesterle, you got it right on this one!
Regulations???? The govt & public are now the ones pushing banks to return to the days of 2003.
Whether you believe the mess originated from greedy bankers or irresponsible politicians pushing the CRA, the bottom line is that the moment banks started losing their tails on EPDs they quit making those risky loans. This change in program offerings within the industry occurred very quickly, in some cases overnight. Banks responded to the market & quit offering high risk loans.
Now the Banks & investment banks (if there are any left) understand the risk & choose not to make those loans, however govt suggests that we need a “quick fix” we need you “to open up the spicket” & start lending again.
When the dust settles the question is, who would do a better job regulating this type of lending, the banks who eliminating the risky programs the nearly overnight (march 2006) or the government who was still expanding FHA guidelines in 2008?
Posted by: David Wilson | Jan 22, 2009 4:18:56 AM
Thank you for the helpful information. I bookmarked your site, and I hope you keep up the good work on making your blog a success!
Posted by: Rachael S. | Jan 29, 2009 7:30:12 AM
Yup. The biggest issue is letting those who help cause the problem to solve it. Govt bureacrats do not know or understand business. They understand spending money.
Posted by: arizona carpet cleaning | Jul 7, 2009 5:26:16 PM