Banks have already made the loans and are now refusing to refinance to save their customers money. Same loan company lower rate… is a no go, they still want the customers money and are not willing to give a break and save them hundreds of dollars a month.
Credit companies like att and citi are raising purchase rates on good credit customers from 5.99 to 13.99 just to make more cash for themselves how are we going to benefit by paying the creditors more money in interest not me. I won’t spend it if I am going to have to pay that outrageous rate.It has never been that high for me in the 20 years I have had my cards.
If you want banks to lend money, stop bailing them out.
lending is their method of earning revenues. keep bailing them out and they have no reason to lend.
As i understand it, banks make their money from lending. When we hand them free money why would they need to make it the hard way – i.e. lending.
The new banker’s motto is ‘we just dont have the appetite’.
Remember the old joke: Q. Why do people rob banks? A. That’s where the money is. Well, that’s still true. That is where the money is, but getting them to part with it (robbing banks is not the answer) is getting much too difficult, if not downright impossible. People and businesses with good credit and a good job or sound business practices should be able to get a bank loan. After all, that’s what banks are for, isn’t it? On the other hand, today, that may not be the correct answer either. I’m for forcing banks to make loans to good credit risks, especially those banks receiving bailout funds.
The problem stated with the Community Reinvestment Act, which required lending institutions to find a way to lend money to those who could not get a convetional loan.
Now, with the rise in unemployment lenders don’t want to lend money because a person may have a 650 credit score today and be unemployed tomorrow.
The result of this bailout will be a tremendous “Fire Sale.” Look at history. Zimbabwe just issued a 50 billion dollar note that buy 1 – 2 loaves of bread. It can happen here.
Isn’t that what banks are for??? My husband and I were in the middle of getting our lake house built. We were pre-approved for way more than we intended to borrow to do this. Well, the bail out happened. Now, we can’t get the loan we needed. Our credit is perfect. We have bids going down the drain because of time, we have permits expiring because of time and we have a lot of money already in this. Pretty sad. I get up every morning and just shake my head. It was a real shocker not to get the loan we thought would be absolutely no problem. My husbands job is secure and we have plenty for a downpayment. Give me a break! How else is the economy going to survive if banks don’t loan money? So much for the American Dream that we have worked for a long time to achieve.
We all know you can’t throw money at the problem!!! We must have accountability for every taxpayer dollar. This country is on the verge of economic destruction with no help in sight. You cannot force bank institutions to lend. They are the straight arrow backbone of our economy. They are not lending because they would be out of business if they do. And if that happens a third world America is not far off.
For those of us who had perfect credit up until the crisis occurred, what are we to do? How can you help someone else s credit and your credit is in the toilet? Realtors and loan officers cant support their families because they don’t have a business to run. Depending on lending to others and clients purchasing homes in order to make money has been the order of business in that particular field. Pass history tells us that government intervention cannot solve the problem but only create more havoc. I believe in hard work and paying your bills on time..But I don’t believe in taking money out of my families mouths in order to pay the bills.. My expenses a month have not exceeded my normal income but for some strange economic reason I cannot pay my bills!!! Go figure!!! Commission employees and small business owners will suffer the most in this ordeal. Tarp and Stimulus packages will only fuel new projects and banks. What about right now which is the middle class that is suffering…there will only be poor and rich people when this epic event is over. I feel sorry for the greatest minds that didn’t catch this earlier and regulate the system, and now scrambling to try and make something stick!
Banks should be forced to lend. What struggling business or individual wouldn’t like to have enough money to fill in the holes in their balance sheets. This is taxpayer’s money. This money should be used to stimulate the economy, to help businesses meet their payrolls, get their supplies, etc. If the banks expect the taxpayer to keep them from failing, long time customers should expect the banks to return the favor. Too much importance is placed on credit scores. Whatever happened to looking at how long a person has been a customer and how your customer pays and making a decision based on that. They should unload some of those reposessed or foreclosed homes with inflated prices. Lower the price and sell to people who have been able to pay their rent for 10 years, but can’t meet their “credit” score or can’t come up with the huge downpayments. That would help their bottom line. Loan to small businesses and individuals with the means to pay. Nobody expects them to give the money away, but they should not be sitting on it. The way BA works they are more likely to cause many small businesses to go under. I know first hand.
i think there is only one simple way out of this mess. i think the government should give the $1 trillion to all the taxpayers and then it will be spent on the economy. People who dont have jobs could live on it for a while till they find a job and people that are behind in payments could get cought up on them. Other people could also spend it on a good down payment on a house or car. So i firmly believe that this is the only and quickest way to solve and help the current economy.
The video asked if banks should be forced to lend and one of the responses was – I have perfect credit but can’t get a car loan because I was told that the banks aren’t lending. I have to call BS on that. Maybe one or two banks aren’t lending. Shop around. I work for a large regional bank. We are lending quite a lot of money to credit worthy clients. And we are doing it every day.
Let the market straighten it out. If you go to a bank taht says they aren’t lending, question their stability. Come to a bank that is lending.
The basic concept here is straight foward and simple: Banks need to lend money only to those who have the ability to pay the loan back. Nothing more, nothing less.
I think there is a lot of generalization going on. It is not that you force the bank to lend to everyone. However, those that had qualified (even under the newer constraints) should be able to get their money now. The banks have actually “froze” money that was already authorized to be lent out. This is causing major squeezing on all areas of commerce.
Well, well. More government intervention on the horizon, eh? I think that the government should stay out of the economic sector altogether. It is the government which got us into this mess to begin with. Those who say we need more regulation are wrong…where were the regulators(SEC, and others) when all this mess happened to begin with? Madoff pulled his scheme right under their noses. The government began this economic situation when they first strongly encouraged (promoted) risky loans via banks to begin with.
What about the commercial paper market? I have money in CDs that I would put back into Money Market fund if MMfs were paying a decent return. Could the gov’t re-liquefy the day-to-day lending business needs by setting up a MMf like Fannie & Freddie ? I understand MMf are FDIC-like insured by the govt now and it has not opened up lending.
Forcing banks to lend! s this more supply side republican small head crap.
While we are at it, force everyone on unemployment benefits to buy a car. That will end the crisis in Detroit. Wondering how will they loans? Force the banks to lend. He he he…
One more, anyone earning more than $55,000 a year should be forced to buy a house.
One more, anyone getting food stamps must be forced to dine at a steakhouse once every month.
Banks should be ‘forced’ to lend to qualified borrowers with good credit scores. After all, the tax payers are been forced to bail them out. I also think that any banks getting government funds should have a pay cap for their employees and a moratorium on all unnecessary expenses, such as recreational trips for company employees.
I don’t think we should force banks to lend, but maybe we should be using some of the TARP money as a more direct incentive to lend.
For mortgages, it seems like banks have turned into fee collectors. They originate the mortgages and then they pass the mortgage and risk on to Freddie/Fannie or into mortgage back securities. Why not create a process where TARP funds are used to pay reasonable and typical closing costs and fees, plus an additional incentive payment to the bank for each “at risk – toxic” mortgage that they restructure. The process would need to have criteria and a process to document that the mortgages are truly “at risk” and the restructured mortgages would have to meet criteria for improvement to the risk of future default.
After all, the banks are the best position to deal with these mortgages at the micro level, mortgage by mortgage. The Federal Government will never be able to do that. And we have seen the result of giving the banks money and hoping they start lending.
If the banks a coin (fee) operated, then lets put money in their slots, instead of in their vaults.
Let me see, the Bank regulators (FDIC, OCC, State) are going to come in our banks with both guns blazing and go overboard in classifing our loan portfolio’s and then the government (talk out of the other side of their month)is going to force us make more loans. Did I understand the problem correctly?
While there were many bad loans made in the past, I think it is a disservice to the American people to overlook the fact that frivilous spending on the part of banks….i.e. huge CEO salaries, severance packages, and trips with perks for employees and their wives has a huge part in the mess that banks are in. Yes, the banks should have to make loans….with certain stipulations to the very people who are responsible for paying this enormous bail-out price tag.
Until the credit crisis hit our credit was excellent. We rely on construction funding for projects. The market has dried up and what once was a thriving company with many employeed is on the verge of closing. Our credit has suffered and with no solution in sight. It should not go to banks, it should go directly to business and people so they can survive.
Does anyone get it yet…it’s the housing markets stupid…build houses, people by appliances ,carpet, furniture, landscaping, swimming pools, window coverings. IF they aren’t building, people aren’t working, if they aren’t working people can’t buy any of thing manufacturing things that give other people jobs.
But of course all the liberals who either work for the government or get a welfare check wouldn’t understand that concept…they are to busy giving our money away for bonuses and banks who are buying/investing foreign companies with the tarp money instead of loaning it out to people who really need it to keep their doors open.
I don’t think they should be forced to loan the money, but, they SHOULD try to help with loans! This is my situation, my husband and filed bankruptcy over a year ago(chapter 13, so, we ARE paying back the totals)and due to the stress ans strain of the falling economy, bankruptcy and other matters, we have decided to divorce. We had tremendous credit, we were never late on our payments, even if it meant we didn’t eat. Even when we decided we could not do it anymore and decided to file, we were still current on all of our payments. YET, no one in the credit department looks at that, even though the info is right in their faces when reviewing our reports, all they see is the BANKRUPTCY, never mind the fact that we are still paying the balances under chapter 13. We felt the economy crunch and decided to go the only route we could. Chase bank wouldn’t even approve a payment plan for me at my dentist’s office, for much needed dental care for a problem that is affecting me physically. Now, I’m stuck trying to pay for this dental work before I have a heart attack or stroke and this bank has received billions in taxpayer dollars from the bailout!!!!!!! Not to mention, a portion of those billions came off of my back from working and now they can’t, or rather WON’T help me to try to stay alive!!!!!!!!!!!!!! Not to mention, I have to remain in a marriage that should have ended years ago, because no one will give either one of us a loan for a new home and new start, even though, thank GOD, we still have our jobs!!!! But, with the amount we have to pay each month to pay back the bankruptcy and other bills, we are falling between the cracks as so many others, there’s no one to help us, even though we are trying to do the right thing by paying the balances back under bankruptcy.
yeah lets start letting the very thing that got us into this mess to dig us deeper.
banks don’t have the financial footing to just start letting customers get more money to go do things they still can’t afford to do.
although this is a tough time in the economy, we need the banks more time to build themselves back up with more capital reserves to help guard against more foolish lending in a economic recession.
I echo the sentiments of JJ, Long Is.. socialism is being slowly introduced into our country. People –for God’s sake look at this !! What will speed up this socialism is this huge spending/stimulus package being debated. When the powers of the State are expanded, Liberty contracts. And when socialism slowly creeps into a society, the people are less willing and able to stand up, and rebel against it because they become enslaved to it. Dont just sit there —call your senators and remind them their power is on loan from us, they work FOR US, you and me. They should be responsible with our money and not feed it to companies that can’t maintain their own liquidity, let them go bankrupt, we clear off the bad assets and start over. Until that happens get ready to feel the pain.
Responsible lending is the key that will open the door to renewed prosperity. There are droves of qualified borrowers out there–someone needs to tell the lenders to get to it!
What needs to be done is force the banks that had already approved the loans to small businesses over the past few of months (since the initial shake-up)to issue those loans. Many business (engineering, commercial contractors, etc) were midway through purchases based on approved loans, when – without warning – the banks froze the payouts. Now the purchases either hang in the balance, or the business owner is going under. Either way, it really has stopped all layers of commerce.
Banks must use the bailout money for the consumer, not for all their screw-ups!
This is about as silly as forcing the consumers to borrow. This country is going down hill at warp speed! Capitalism is being replaced with socialism.
banks made this mess giving loans to any one and now we all suffer , my resolution is firs banks should help people who have homes ,lower mortgage rates , let people refinance their mortgages .thai is what will get us all moving
Assume the following: I bought a house 4.5 years ago in CA. I gave the bank 20% at the time and made all my payments in time and without a problem. At this, I need to refinance and bank assessment was lower than the market. I need to give the bank another significant amount to refinance. I have questioned the financial institution and response was: “You can do another assessment, but at the end the back will have the final word and it is unilateral.” In summary, honest people who are trying to survive the crises are struggling more than the people who did not respect the rules and lost their houses to the banks. Is that good for the economy???
Although I do not condone how the banks have behaved, nor people who have behaved poorly with their credit issues, I will say that those who attempted to establish a viable small business that have had to shut their doors are the beneficiaries of a perfect storm of collapses. Banks tightened up credit to lenders so much so that even companies with decent scores could not get loans…even on projects that they were already awarded for which materials were required. Add to that the issues of residential, commercial, and municipal projects either being delayed or indefinitely postponed and you have a perfect storm to grind any small minority business to a halt. Now a company could not even liquidate itself because there is no credit available for a potential buyer to purchase equipment. The situation is a similar to a black hole…it collapses upon itself and does not allow any escape. Hopefully, I said similar because we can change this situation. However, I think at this point we need to look in a different direction from just supporting banks. Small businesses and individuals need to be supported…and by more than a $500 “gift.” Haven’t we already tried that and it failed?
Forcing banks to lend is what got us in this mess.
Ie; the very fact that congress forced some banks to loan $$ to people who should never have gotten them is what got this mess started.
I just figured out a solution for the entire worldwide economic crisis, why don’t we just hit the reset button? Forgive all personal loans worldwide as a matter of fact just take every debt back to zero LOL. Hey it is just all paper anyhow, and remember it is transparent.
If you have had a good record, pay your bills on time, and your credit score was good, before George W. Bush’s second term and can prove that the you suffered unyielding economic hardship than you bet ya.
I agree! Loans should be made to credit-worthy people.
However, I hope the Government takes a real hard look a putting more money into these banks.
I think the banks are using the money recently received to hide huge, as yet uncovered problems with their balance sheets!
More money will just be down the tubes until the extent of these problems are brought to light. Getting out of this one is going to require more consolidation and maybe even some liquidation.
I desperately hope I’m wrong!
You know what is even more amazing is the fact that we gave these bank bailout money. Why? Like everybody else is saying they should not help the irresponsible but soon everybody will be in that catagory. Now we gave all this money and nothing and now we will give them more, it seems to me we just created big business welfare. I agree it should go to local credit union much better results would be achieved. And now to top it all off everyday the market goes up on down mostly due to the media and mainly casued by the short selling.
How about this for a big suggestion, just like a dry erase board we just forgive all the debt in the world and start over again? It is all paper anyhow? just hit the reset button LOL
Fed up!
Banks have tightened up on loans due to huge losses they made in the subprime over last 10 yr. Whose fault? Mainly theirs. If they won’t lend money, give it to credit unions or small community banks who will invest it back into community without huge interest rates and who do not pay these overpaid CEO s or CFO s huge bonuses for nothing. We have taken away incentives for first time homebuyers, with no down payment assistance and investors who had been a large percentage of the housing market. If we allow, foreclosures to run the course look out. Already record numbers close to 2 million nationwide. Must we wait to hit 3 or 4 million, and see more small builders out of business, so only big builders and few big lenders are left. If we do, god help us all.
First of all our tax dollars are meant to get the banking system’s balance sheets back up to par so they have money available to loan, not to relieve irresponsible people of their loans. Second, the reason that they are in such rough shape is that our Congress and a past president (not the most recent one) encouraged the mortgage companies and banks to be irresponisble buy initiating a program where Freddie Mac and Fannie Mae were encouraged (because they were part government organizations) to buy these stinky mortgages from these financial institutions knowing full well that they were given to people with questionable credit for the purpose of making the American dream of home ownership available to those that “normally could not afford it”. It worked beautifully as long as the price of homes kept going up. We know how that brilliant idea ended. Finally, I don’t know why we would force the banks to loan money just for the sake of it. Would you loan money to a friend who is a deadbeat? Do we want this financial disaster to keep on for years? I have no problem getting a loan or money when ever I need it. Credit is readily available. If the credit card companies want to raise thier rates, I could care less, I pay it off every month. It’s simple, pay your bills on time and keep a good credit rating, don’t overextend yourself and the banks are fighting over each other to lend you money at great rates. If you can’t get credit because of your inability to manage your finances then the financial system is now operating properly. Get used to it or take control of your finances. There is a lot of pain out there and I am worried as much as anyone. But lets get this overwith instead of prolonging the agony like these idiots in Congress are hell bent on doing. We have had much worse times in the past and we have survived, we will again. I am hopeful as anyone that our new president can turn things around in Washington. Unfortunately the lunatics are currently running the asylum.
What, exactly, are the banks using our money for?
Like if someone is three months behind on a mortgage or car payment, and the bank receives a government bailout to pay the bank for what debtors haven’t, why are those debts not being forgiven?
Why not give the TARP money back to the people the government took it from? It can not because it printed large sums of it without taking it from someone, so that is not an option. How about do not spend the money on irresponsible and inefficient banks? The government is the cause. If peoples understand how government functions, they would understand that the Federal Reserve is a cancer that spread to the federal government and helped cause this American service industry weak economy. The government can not do anything responsibly; it can only consume recklessly and excessively.
I have never heard the fed tell banks to start lending TARP money to bad risk borrowers. I feel banks are using this convoluted lie, as an excuse to hoard billions in tax dollars, and further their own greed by buying up smaller banks using TARP funds.
I’m sure their shareholders and CEO’s are still getting their fair share of TARP funds also, when they should get nothing due to their own greed of the past.
Banking starts with being responsible. This problem didnot magically appear because millions of Americans refused to pay their mortgages. It started (in part),because bankers agreed to ARM mortgages they knew consumers could not afford, once the interest rates re-adjusted.
What? Force the banks to lend?
This sounds an awful lot like what ACORN did to the banks that got us ALL into this mess to begin with.
ACORN picketed banks and “forced” them to lend to less than worthy applicants.
When these loans defaulted en masse we have the current economic mess.
So much for change!
In all this flap about the banks this and the banks that, I have only one question: Have the banks been ANY less responsible with money than the federal government has? No? Case closed.
What we are seeing now is the end result from decades of not saving enough and spending more than we earn. The credit and banking “crises” are merely symptoms of this much deeper problem.
If they won’t make loans they should not be allowed to feed at the taxpayer trough. That is their choice but what they want is taxpayer funds with no strings a la Pirate Hank.
We need to learn our lesson. Banks should lend money to responsible borrowers. Credit needs to be earned. This mess was created because to many bad loans were made. We can take our medicine now or we can let it get worse and have a bigger problem down the road.
In other words throw money at the banks so they can buy other banks and resume giving their execs unearned bonuses. What you are saying is that the banks should profit and the taxpayer should be responsible.
Consumer lending maybe the wrong side of the equation to change. Why not take some of the TARP money and have the government enter the commercial paper market? Improve short-term lending to small and moderate sized businesses to continue operations and put people on their payrolls. That will create wealth and fill up the void in the comsumer lending bubble.
Lack of credit in the private sector was the sole reason for giving $300 Billion to these banks and financial institutions.
If the banks can’t justify making loans to sound borrowers, then I don’t see how the taxpayer can justify giving them the money that prevented their bankruptcy.
Therefore, we should take the $350 Billion back and open a new Federal Direct Loan Bank, which would be charged with making loans to reasonably good credit risks.
Later, when these banks have become part of history, the government should sell the Federal Direct Loan bank to the private sector, for a profit.
If the banks don’t want to play a part in saving the economy, then why should the public be interested in saving them?
Frankly, I don’t see how the federal government could be ***any worse*** than the big banks at judging credit worthiness. Perhaps they could hire managers from the community banks that played the safe hand during the housing bubble.
Paul,
IT’S ABOUT TIME!!!!!
You are finally coming around. What? You smelled the coffee.
NO BAILOUTS!!!
Forcing the banks to loan money is another form of bailout. Heck, the banks should never have received the money in the first place.
But, all you geniuses said, we have no choice.
Ha! You got snookered!!! Talk about naive.
Here is a new word to learn- GREED!
And when such force is applied, can you see the rush to force loans to politically advantageous industries or sectors? Green energy (even if it will be a loss for decades), carbon sequestration (even if there are economic returns), Detroit (regardless of their business model)…
What I am finding in my business is that banks have become averse to any lending risk at all. This is freezing out many good viable customers.
The article represents a fundamental misunderstanding of the problem. Any individual bank wouldn’t want to lend money, it wants to shore up it’s balance sheet obviously. Just as any individual wants to pay down debt. Duh. The macroeconomic situation is much different. If they’re paying down debt they’re not buying cars, if they’re not buying cars, less cars will be made which cascades through the economy. Money needed to flow, quickly, 4 months ago. This is an example of ‘if I do it it’s good, if everyone does it it’s bad’ sort of problem.
The point of the low interest rate is that it’s much easier to make money on loans, and much less likely people will default.
There are better real steps the government could take than forced lending, but the whole point is ‘we’re giving you 350 billion dollars to lend to people at 1% interest’ (or whatever % interest they figure they can break even at). Which is cheaper and more likely to be paid back than loans at 6 or 7%.
The government would be better to focus on refinancing existing debt. Have a mortgage at 6%? The government should buy out the bank and let you have the same loan at 1%. Credit card debt at 20%? The government will buy the debt and charge you 4%. This would free up cash for consumers to spend on things (which creates jobs), and reduce default rates, and it would make people able to take on debt for things like cars.
Of course they’d also be well served 1. devaluing the US dollar significantly. This largely has to do with the Yuan rather than oil, which is problematic because on about, 800 billion dollars in trade 650 is going out while 150 is coming in (leaving a trade deficit of 500 billion). The way I read balancing that out is naively is that in the worst case balance would come with a 77% devaluation of the dollar, or perhaps more usefully if the yuan increased in value by about 300% (which would converge the PRC’s purchasing parity with nominal exchange rates incidentally). Some combination of the two is probably in order.
2. Creating a clear environmental policy, and then applying import duties on goods from countries that do not meet said rules.
3. Apply 2 to existing rules as well. If you’re still putting lead in paint, your products get a (some number)% tariff.
Back to the article: What’s good for one bank at some arbitrary point in time is not good for all banks (and the economy as a whole) in this particular moment in time.
An additional point – household wealth fell by over $10 trillion in the first three quarters of 2008 alone. That is almost 77% of annual GDP and more than the consumption portion of GDP. In other words, there is $10 trillion less assets to secure loans against today, so why would banks lend unless it was against secured hard assets (stocks, housing, everything has lost value) or backed by a solid business plan.
Fiscally responsible people (like me) who don’t drown in their own debt and have an excellent credit score, should be rewarded every year with progressive tax cuts, limited by some maximum bracket.
A program like this would effectively make people live within their limits and motivate them to save for the future.
If banks are ‘hoarding’ money, perhaps there is a reason for it? If they are holding capital for additional anticipated defaults and losses, they are being responsible. If they are not giving out loans because they don’t like the risks of lending in the current market environment, that is being responsible. It is in their interest to lend, after all that is how they make money, but it is also in their interest not to lose the money they have recklessly. This drive to force them to lend is again Congress at its finest, back seat driving and attempting to ‘engineer’ the market.
Paul forcing the Banks to leand my not be a good idea, but this has all come about for lack of transparency. It a simple question of where did the money go? No one knows if that simpel question were answered then may be there would not be this push. Do they need to lend yes, but be responsible in lending and not to every Tom, Dick and Harry.
We would noe be in this particular situation if Paulson had actually followed through with TARP as originally planned. By not removing the bad assets from the balance sheets they have continued to depreciate and take the capital infusions with them. In stead of buy stock in Banks they should have taken just a little time to value the assets and buy them. This would have then put capital into the system that would not evaporate with decline in bad performing assets. Yest a couple of Banks might have gone belly up, but that would have gotten the dead wood out of the way and allowed the best to survive. With the second half of TARP may be we’ll see the right approach actually put in place. Paulson was hoping that by throwing money at the banks it would in still confidence. But it never addressed the root cuase of the problem. So we can right off a good part of the first $350 billion gone for good.
So banks get to make bad loans and have the taxpayer assume the risks for their irresponsibility? Something’s wrong with that picture!
The reason we were told about the whole financial crisis situation is that there wasn’t enough money in the system to lend and that was styming economic activity, so the whole premise of the bailout seems to be a sham if all they’re going to do is hold onto the money.
Now no one is saying that they should just loan money to anyone (which was the point of the article) but I don’t want my hard-earned money being used to make the banks’ books look better so they can make more irresponsible moves like buying up others’ bad debts (see Bank of America and Countrywide as example) or give out bonuses and dividends. But why would I think they’d do that???
Paul,
While I agree with you in principle, we are beyond the point of academic market operation. If we wanted to allow markets to function responcibly then zero bailout dollars would have been used.
As it stands the banks need to function as intended. Banks are loaning institutions, and should meet thier intended duty. If they do not higher and higher interest rates will continue to hamper daily operations of business. In short, either the banks start loaning money at rates that companies can afford, or there will simply be fewer companies asking for money.
Regarding TARP, I think we’re being taken for a ride. I read that 1 million foreclosures happened last year. Even if these were all for 100% loan-to-value for the median home ($200k) and the bank only recovered half (50%) of it during the foreclosure sale, that’s still only $100 billion per year:
1 million x 1.0 x $200 thousand x 0.50 = $100 billion per year
So, how do we get up to a $700 billion TARP in well under a year ? There must be derivatives, dividends, executive bonuses, other bad investments, and banks throwing in the kitchen sink to inflate the losses so large. And, we don’t want to bailout this kind of bad behavior, ever.
Demand the money back and kill off the TARP. If there are banks that need help, we can nationalize them through the FDIC or set up a takeover by a healthy bank.
We need to get the hands of billionaires and millionaires out of our pockets.
What people don’t seem to understand is that banks are lending but in very limited amounts. Banks are faced with an ever growing amount of late pays, delinquencies and foreclosures. The reality of the situation for all the people who think they know the facts is that banks can’t lend out all the TARP money or you will see more banks go under. The banks Balance Sheets are in such bad condition that they need the TARP funds just to stay solvent. If they lend the money out the fact of the matter is that alot of those loans will be in default in a year. How can banks lend in an environment of rising unemployment, Oregon alone hit 9% for December up from 5.5% in June 2008 and is forecasted by the state to be well above 10% soon home values as of November 2008 are down 10.1% year over year. How does a bank lend on a decreasing asset? Would you, no, why should a bank? How does a bank lend in that environment? The amount of businesses in this state that have closed their doors or are in bankruptcy is growing every month. In the reality of the situation how can a bank lend in an environment of rising unemployment, bankruptcy and business closures and the decrease in home values and a severe slow down in consumer spending? How much longer are we to live on credit just to keep our economy growing? More credit is not the answer, the proper amount of economic growth, spending and savings are the answers. Giving people more credit is just going to increase thier monthly payments and dig them into a deeper hole. Banks can’t lend out more money, they need to keep some just to keep a float, otherwise you will see more banks go under. I have been in banking for 11 years now and I see the amount of loan deliquencies and default’s our bank is dealing with, and that number is expected to double this year, that after doubling last year.
As a retired banker who has been through several credit fumbles, I know that banks do NOT lend from their capital funds; all lending is done with depositor dollars. Capital funds’ purpose is to absorb risk and the fluctuation of losses.
Right now, losses are up and may well go higher. What a bank does at a time like this is make certain to make only GOOD loans, not just any loans. EVERY depositor deserves to receive all of his/her/its money back down to the last penny, and the way a bank does this is to make only good loans.
It is past time for banks to restrict lending to only GOOD loans — a message they seem to be getting just fine.
As one other commenter pointed out, the media created this “abuse” of the TARP program out of thin air. There is no substance here, because banks are indeed lending; Bank of America pointed out in its statement about the additional help they’re getting over the acquisition of Merrill Lynch that they lent some $155 billion in the most recent quarter. [I note that the $155 billion is about 10 times the $15 billion in TARP assistance the bank got (the rest of the assistance BofA received was due to Merrill Lynch, not due to the bank's operations).]
If the Treasury and Secretary Paulsen had thought it prudent to make new loans, they could simply have offered to buy newly made loans from the banks via the existing loan securitization programs. It’s no fancy trick; auto loans and credit cards have been securitized for years.
{Securitized means packaged and sold to non-bank financial operators.}
***
Now, there is something to the notion that the bank regulators do not understand what a prudent loan is and thus their examinations do not prevent poor lending. I’ve seen losses on real estate based lending multiple times in my career: mid 70’s, early 80’s, late 80’s, early 90’s, and early 2000’s. I can’t say that there is much evidence that the regulators are learning much about safe lending.
Maybe it is time to unify all depository institution regulators into one operation and charge it with assuring that ONLY prudent loans are made with depositors’ dollars.
Very simply, banks should be required to lend to worthy receipents according to federal guidelines to minimize risk. Emphasis is on guidelines, it IS possible to detail out specific guidelines for lending in legislative policy. Your article does not even discuss this as a solution. If banks do what you suggest, which is to clean up their balance sheets with billions of dollars in TARP funds, there will be no economic benefit in doing so for the larger U.S. economy. Basically the government would be asking struggling American’s to give money to irresponsible banks that now want a handout to clean up their mistakes with not benefit to the economy since the banks would merely hoard the cash to offset their losses or acquire other banks with the funds. The TARP funds should be used to create new jobs and instead of money the FDIC could insure all new lending made by banks in the U.S. for 5 years in order to stop default risk if and only if the banks follow strict lending guidelines. Lending to qualified small business owner’s (under 1 billion in yearly revenue) will lubricate the economy and eventually lead to job creation. When it comes to credit default swap’s and cdo’s (the blemish on banks balance sheets), these assets are currently impossible to value until the credit risk of current borrower’s can be clearly ascertained- which will not happen until the economy turns around.
Final note, I recently went to a Bank of America branch and received a free $5.00 gift card to Java Juice along with anyone else that walked in the door……….is this the way TARP funds should be leveraged?
Reckless lending? Talk about putting the conclusion before the facts. Let’s try turning that around and try putting the facts before the conclusion, shall we?
The current credit crisis was indeed caused by reckless lending. Banks and mortgage brokers found themselves in a regulation-free zone where they could mix good mortgages and questionable ones, slice them up into securities and sell them to someone else, thereby picking up the profit while dumping the risk into someone else’s lap. (Conveniently, the private companies trusted to rate the quality of such offerings took this junk and marked it triple-A prime quality.)
Who could resist such a deal? Zero ethics + corrupt equity rating firms + willing buyers equals profit with no risk. No risk to the loan originator, that is. Plenty of risk to the suckers who bought these high profit, low quality equities.
But now we are talking the exact opposite extreme. Major banks have been recapitalized by the federal government and yet refuse to make loans to sound businesses.
Perhaps it is a bad idea to force these banks to make sound loans. Perhaps instead of recapitalizing them, we should have said Sayōnara.
Perhaps it is time to take these funds and open a federal bank and loan the money directly to sound borrowers.
Then, after all these not so interested in the public good institutions have failed, we can sell off the new public bank to the private sector. For a profit, of course.
Irresponsible lending coupled with irresponsible borrowing are both sides of the same coin – IRRESPONSIBLE – and should be discontinued. We all agree on this.
But any additional monies – TARP or otherwise – lent to a “troubled” bank should be contingent on their ability to identify and clarify just how much “toxic” debt – bad loans – they have on their books. Until we have some idea how deep and vast this “black hole” is more taxpayer money is out of the question. We the taxpayers should demand this as a precondition before we “lend” anymore money to these banks. And such TRANSPARENCY isn’t likely so long as the bankers and their government handlers can discuss such matters behind closed doors on a weekend and then present us with “the deal” made as a fait accompli on Monday morning.
What frightens me is that these troubled banks have no idea how much debt they may be liable for. CDOs, CDSs, derivatives, options – you name it – have been spun off to the far corners of the globe with little regulation or oversight as to who owes what to whom and when it’s due. Hence, their hoarding of funds to shore up their capital reserves and usurious credit card increases to recoup their losses just in case the shoe drops. Meanwhile, responsible lenders and borrowers suffer, strangling the economy in the process.
I think LaMonica has it mostly right. Stupid lending got us into this mess. It is going to take time for us to get out of it. That doesn’t hold much appeal to ‘quick fix’ Americans, but the harsh reality is this thing just has to play itself out. There may be instances where banks are not lending even to those who are well qualified. But I tend to think that’s the exception rather than the rule.
Everyone on here needs to read the following post. If you do not understand what he is saying you are part of the problem and probably one of the people that are screaming for more lending.
Posted By Kent, Atlanta, Ga: January 21, 2009 3:50 pm
Rather then force banks to make loans they don’t want to make, just stop them from evicting nonpaying borrowers. Many of the people defaulting on their loans are doing so due to a drop in the price of the property they purchased. Neither the bank lending the money nor the homeowner purchasing the property expected the drop. Why not find some way for the former owners to stay in the unsalable property, paying rent to the bank. Nobody is put out into the street and maybe as the economy improves they can arrange to repurchase the property at the current market price. The bank takes a hit, yet the property is occupied and safeguarded. The former owner while loosing any equity, isn’t homeless.
The bottom line is this. On the supply side, it’s not that the banks don’t want to lend (which is partly true) as much as it is that they CAN’T lend. They simply don’t have enough capital. And scary as it sounds, a $5 trillion bailout fund would NOT be enough. The banks are insolvent now, and, if it’s possible, they will be even more insolvent in the near future when MBS values fall further as home prices keep dropping amid rising foreclosures and unemployment, and as credit card and commercial loan delinquency rates skyrocket. On the demand side, very few businesses want to borrow because they simply don’t have the revenues to make monthly loan payments, and consumers don’t want to borrow because they are already up to their eyeballs in debt and/or are afraid of losing their jobs. So there you have it. Banks won’t lend, consumers and businesses won’t borrow. Only ONE way for all of this to correct itself: time. You need to let all markets return to NATURAL, not government induced, equilibrium. Then prices for goods and services will be low enough for people to afford, people will start buying things again, businesses will start hiring again, banks will start lending again, and the economy can return to health. In the meantime, consumers and businesses will have paid down significant amounts of debt such that the economy as a whole will not only be growing again, but it will be in much better shape and the growth will be sustainable.
Everyone else’s posts on this story have been very enlightening as well.
Lending money leads to economic activity. However in an uncertain economy lenders are understadably more conservative. Use the remaining TARP to guarantee bank loans at a level that will levergage the $350 Billion into the trillions. Have the TARP Guaranttee the top 25% of the loan. The portion of the loan that is exposed to collateral risk. This will encorage banks to lend. Banks earn interest and business spends the loan proceeds. Chicken or egg? This would be starting with the Chicken. Chickens produce eggs that hatch into more chickens.
YES!
I have friend who is a senior group VP of a well known old industry company. When we last spoke, he said to me that all the downsizing, rightsizing, and restructuring will not pay off unless the credit markets unfreeze. The banks have stabilized by seeking federal (taxpayer) aide, and that is good. But until they begin to release the funds back into the economy so that the wheels of commerce can shake the rust off, no one but the banks are benefitting from the bail outs.
YES! If they have benefited from taxpayer dollars, the banks should be forced to make loans. I say required, but with prudence toward increased responsibility. Afterall, you have NO OPENNESS by definition, when banks are allowed to hoard public bailout money while still keeping the credit markets frozen. Without that openness you will not see confidence… you will not see reinvestment… you will not see hiring.
The cycle needs a hard reboot. Better to give the boot to the banks now and force the teller windows open.
Paul, I have criticized many a column you have written over the past year, but you are dead on here. I love to hear the politicos (Dodd, Paulson, and yes, even the Great One) talk about helping (or is it forcing?) the banks to get their lending back to “normal.” Without a doubt, there is some benighted sense out there that public liquidity stimulus to the banking sector will result in revisiting an approximation of the insane lending practices of the previous 5 years. Never do I hear or read the word “austerity” anywhere coming from Washington. Policymakers have to understand that whatever the liquidity extended to the credit markets ultimately amounts to, this country will (has to) experience a tough 2 to 3 years of limited credit investment. It is time to lick the wounds and shore up the P&L. Credit card, auto loan, and mortgage applications will face much tougher criteria and scrutiny. It isn’t going to be pretty and taking medicine rarely is an enjoyable experience. Many Americans, though, seem to think (judging by the polls) that immediate gratification is on the way and that our new president has just the switch to flick. Gird the loins folks, it is going to be relative economic drudgery for a while.
you can thank the liberal media for proudly stating that the banks are “hoarding cash”….they are in this position because over-leveraging. That means they alreayd loaned out too much money to people who couldn’t pay it back and instead defaulted. Now, they need to shore up that over-leveraging before they can appropriately lend – if they don’t, then their balance sheets stay in the same place, their stock goes down, profit goes down, they have to lay off more people, lend to less people, and we all stay is the same sick twisted cycle. Let them recover and then they can lend at the levels they were lending at before all this happened. It’s like playing a sport so hard that you break your ankle – you need to let it heal before you can play again. You can shoot it with cortisone to ‘make the pain go away’, but it will only cause more damage if you keep playing. That is what is wrong with our culture – we have become a nation of ” I want it now and I don’t want to experience anny pain to get it”. We need to spend less and save more and live within our means – we can’t spend our way out of spending too much money in the first place.
The idea that the bank should lend money or not I think is false. The banks will be forced to lend money, because on one hand they are used to have huge profits, and on the other hand one of their juiciest profit provider: investment activities does not work any more – so no profit from there. So, if they want profit, they HAVE to lend money. Period. There is NOT if but WHEN.
We wanted capitalism not because it’s called “capitalism”. We wanted it because it worked before. Now things are changed and keep changing as we speak, the “capitalism” in the text book needs change too. Citing what is in and trying to find our way of trouble from your textbook won’t do anyone any good.
I don’t believe these economists because who knows they are not shorting the banks right now… Like Jim Leary insisted the housing market didn’t have a bubble before he left as chief economist. Now he said he had to what he had to say… what bunch of cockroaches!!
When I read the article, I thought of the same two things that Nick and YT brought up. Now, I don’t know about the other two, but I am not an economics major (did have one course though) but I see nothging in the article that could explain his position very well. In addition, we have institutions “freezing” HELOCs on people who are responsible. The banks SHOULD be forced to learn how to make good loans and then MAKE them. That is what the tax money is meant for. Besides which, isn’t making loans the way banks are supposed to make money? IOW, do their job?
I’ve always taught my children that if you are going to borrow money, it should be secured by the assets you obtain. For example, you need to put enough down on a car to cover the showroom discount and all the interest, so that at any point in time the car has greater value than the amount still owed on the loan. That way, if you can’t make the payments, you can sell the car for enough money to cover the remaining loan.
I think banks should be forced to loan the bailout money. That’s the whole point! But they should be required to make only loans that fit the criteria I described above. That’s responsible lending.
Nick, From Chicago, I agree 100% with you, Why is the Rate up so high? Hmmm maybe that would have made a better story? Also I agree if the just renegotiate loans would they not be further ahead and am responsible too?
Hey another story you guys might want to look into too, I why is there so much short selling on the markets? Hmmm to this if this were to shut off markets would be up to say closing around 9,500 a day or more interesting and tell me the media is not feeding this too?
banks should not be forced to lend along the lines of the CRA. But banks that receive government assistance to stay in business should be required to lend to people based on very strict lending criteria.
For loans to individuals, a 20% down payment would be required, and the loan should be full recourse. No walking away from a debt when other assets exist. Moreover, a good credit history (anyone who has filed for bankruptcy in prior 15 years or has walked away from a debt should not be eligible).
for businesses, loans should all be recourse loans – where the assets of the borrower can be taken to fulfill the loan. Borrowers should have a proven track record of revenues, and a proven record of repaying loans. a bankruptcy filing in prior years should be grounds for automatic disqualification for now. I personally think that the idea used by the Grameen bank, to have several businesses all co-sign and be co-responsible for repayment is a great idea.
But if banks don’t loan out the money, there really is no reason for them to have it. let the money be returned to the government and sent to all taxpayers as a tax refund based on taxes paid in 2007 (the last year for which most of us have filed returns at this time)
What is a banks purpose? Horde money? Pay their top brass enormous salaries at the cost of the taxpayer and do nothing? I find it fascinating that these banks make big risks during the Real Estate bubble, but are risk averse when the bubble is deflated. Who is going to walk from a loan when you can make a home payment that is cheaper than rent? Seems like our greatest and brightest minds may have it all backwards this time…
Banks asked for TARP funding claiming they needed it to thaw the credit freeze. Now they claim that they can’t lend even with the extra funds? They claimed that TARP funds were not a ‘taxpayer bailout’, but that’s exactly how they’re using them.
Why are we complicating things by this absurd post? Banks are in business to take in deposits and use those deposits to lend to others. Their profit is the difference between what they paid their depositors and the rate they charge their borrowers. When a bank does not lend, it no longer a bank. Their charter to operate as a bank should be invalidated if they fail in their time-tested, primary business model.
Banks should not be forece to lend, but they should be givin rules on how to lend. In the hey day the banks gave money to everybody and sold investors securities with inflated values and false security. Example someone with 620 credit score not proving income or assests could have bought an investment property 100 percent. Excuse me but even the most simple of minds would tell you that is a bad idea. Now it’s the exact opposite. Someone with the same credit score (620) paying a mortgage and has never been late at say 7-8 percent can not qualify for a rate low enough to reduce the paymentto free up cash. The reason is because about a year in a half ago the fannie and freddie (gov owned now) installed rate ups for credit. Maybe I’m missing something but if I have been paying my mortgage at 7 percent on time and I have the same job and income, What makes you think I won’t pay the 5.25 percent rate just as easy as the 7 percent? the other factor is these rates are not priced correct. Margin at 2.25 and index at 2.25 should be a rate of 4.5 not 5.25. Hmm who is getting the .75 I wonder of the bailout money. It’s only a matter of time before people are going to get wise and say. “Hey these bank wrote off my loan, are wanting me to pay the same rate on a loan they wrote off, are not letting me quilify for a lower rate and are keeping higher than norman profits. WHY SHOULD I PLAY BY THE RULES WHEN THEY AREN’T?? I THINK I WILL INVESTIGATE A LOAN MOD OR HAVE A BK JUDGE REDUCE MY PRINCIPLE FOR A FEW HUNDRED K? Simple greed will kill this country.
It is NOT THEIR MONEY that they are saving. It is OUR money that we entrusted to them to distribute back to us on the market.
Why do you assume in your article that the government would only be forcing the banks to make bad loans? Why don’t you address forcing the banks to make responsible loans, since apparently they are not making any. Just like all commentators you attempt to prove your point by taking it to ridiculas disastereous extremes. How about responsible reporting to go along with responsible loans.
The Fed could buy toxic mortgage backed securities from banks contingent on banks writing down the principles of mortgages nearing foreclosure. For every dollar a bank writes down, the Fed buys back $X dollars of mortgage backed securities.
We’ve learned that the willingness to loan money comes naturally once those bad assets are no longer on the balance sheet and it appears as though we have to do something to stop foreclosures.
This solution addresses both issues.
Ken from Dallas; I couldn’t have said it better.
Paul,
what is the point of this story? (besides filling a deadline for you?)
The fact that the President has already asked for, and allocated those funds to give to the banking system tells me that his plan is in motion and nothing that you or I say or print is going to change that even though the majority of Americans are against it.
I’ve said it before and I’ll say it again, you can’t have a free market, capitalist system if institutions that make bad choices are not allowed to fail. What we are witnessing here is the socialization of our financial systems.
Welcome to the USSA everyone!
Money should have never gone to the banks. Money should have gone to strong companies who were being shackled by the credit market freeze at some premium. The banks that were competent would be able to beat the federal rate and be rewarded for their good business practices. The bad banks should have their fates settled by the free markets.
Of course it may seem crazy to let the govt implement such a plan with tax payer dollars, but unfortunately this is orders of magnitude more sensible than what they have done. TARP is the poster boy of federal financial screw-ups (so far…)
Before we answer whether to force banks to lend, let’s look at what the bailout is ultimately meant to achieve. The final goal is not to save banks, but to save the economy. If that wasn’t the case, there is no way that any bailout by the government could be remotely justified. In fact the justification given to Americans for the bail out was to do just that. We were told that without the bailout banks would stop lending (or not start lending) and that would be cataclysmic.
In the first round of the bail out we did little to tell the banks how to use the money. So far that has not worked out as we hoped. They may have started lending to each other, but they haven’t started lending to the rest of us. So the real questions is not “should we make banks lend?” but “should we give them anymore of our money without a guarantee that they will start lending?”
No one is proposing that banks go back to the dark days of irresponsible lending practices. We just want them to get back to where they were before that all happened. Responsible borrowers with good credit should be able to get loans. By all accounts that is not happening.
The argument that a recession is a bad time to make loans is practically facetious. A recession is just the time to prepare for the recovery that will follow. In fat not preparing for the recovery will likely make the recession longer. Businesses cannot prepare for the future unless the banks are willing to loan them the money they need to do so.
Forcing banks to lend is, as you suggest, a very bad idea.
But banks also should not be allowed to buy other banks, or anything else, as long as they are getting tax payer money to shore up balance sheets. Nor should they be allowed to pay any profits out to owners (share holders), nor should there be any bonuses paid.
And, while I’m ranting, they shouldn’t be allowed to shore up their balance sheets unless there is evidence that they 1) can be saved if they do, 2) will be run in a prudent way in the future and 3) the owners, managers and large investors did not take an unreasonable amount of profits out of them during the previous period of binging.
All in all, the amount of tax payer money that is being given to banks will do us great damage in the long run. While perhaps it is true that the government needs to spend some money to help get us back on track, it should always be done with the realization that money spent by the government right now is VERY VERY expensive. It should be spent with care. No cash to tax payers, no pork, no excess military. Reduce social programs, reduce foreign aid, reduce pay to all government employees.
And, by the way, tax cuts don’t count. We all are going to pay for it now or later with interest. What matters is how much they spend. The only real tax cuts are cuts in spending.
So it sounds as though you are alright with the tax payers providing funds to people that made bad decisions? I would think in the face of it all, given the declining number of folks that will actually be in the work place generating tax revenue, we should stop paying out the money and let the institutions that were foolish and predatory in their practices collapse. I guarantee you that once the unemployment numbers hit 8.5% – 9% the lending requests from individuals and small companies, there will be a mad rush to pay off all dept or walk away from it. In all three cases this will cause the banks to convulse. I guess though we the people will provide even more funding so that large banks and those that receive campaign contributions can remain employed.
You know, if the government really wanted to help out, how about they pay off the mortgages of those in the single family homes that did not get in over their head and that conducted them selves smartly. That 700B would have gone a long way to free up all kinds of disposable income and allowed the banks to take the proceeds and secure their balance sheets. Instead we just gave the money away and will continue to pour good money after bad down the well.
“Forced” anything by the State is tyranny, bottom line. Forcibly collecting the fruits of our labor (i.e. taxes) is tyrannical. Forcing the banks to take the money is tyrannical (thank you Hank Paulson). Finally, forcing the banks to lend out the ill-gotten taxpayer monies is tyranny. Does anyone see a pattern here? The State is exerting more and more control of everything.
Everyone keeps mentioning risky loans. The question is not should banks be forced to make risky loans; but should they be forced to make loans?
Yes they absolutely should!
No they should not lend to people with 550 credit scores or allow individuals to purchase homes with no money down.
Obviously if you have no vested interest in something you will walk away from it as soon as the potential profit disapears.
Yes Force the banks to lend to those of us who deserve loans!!!
First let’s clarify reckless lending. If that means more of the creative mortgage packages that all these financial “genius’” created that caused a good part of this problem, then no we don’t force banks to lend out under those kind of conditions.
However lending has to occur; but not under the banks idea of what constitutes a poor risk.
Right know credit card interests rates have been jacked up on most everyone. Jacked up on people who have not missed a payment! Jacked up on people who have never exceeded the meaningless credit limit! Credit limits are dropped causing more people to become poor credit risks according to the credit reporting bureaus obviously slanted computer program. This type of lending has to be corrected. And corrected now, not in a year and a half.
This legalized theft by the banking industry will cause more credit defaults, causing a further demand for bailout money from the banks.
What needs to be done is strict regulation of the interest rates that can be charged and strict regulation of the credit reporting agencies.
As an emergency action all interest rates must be capped until the economy improves. credit cards and other unsecured rates should not be able to exceed 12 %, secured loans should be half that.
Will the finacial sector cry foul? Of course it will, anything that keeps the top dogs from making obscene amounts of money for themselves will cause that kneejerk response.
The vast majority of people try to live responsibly and within their means; it’s the banking industry that applies rules that punish individuals for having a sudden need to borrow money. Like a medical emergency, or an unexpected home repair – there are many sudden needs for money that a person needs to make a loan for. If the indidual is capable of paying the loan back at a reasonable interest rate, where is the justification to suddenly raise that rate because the level of debt is above the magic computer programs limit.
That’s it, I need to stop before I really get irritated. It’s time to stop the crooks that created this mess, return sensibility to the financial market.
That’s part of the reason we’re in the stop that we are. That is stupid to make banks loan money just because it’s there. If Obama talks about being responsible then he should start in Washington DC.
Yes, if the banks are not lending then let them implode. They want taxpayer $$$’s and there are strings attached. Maybe they should have though about their Business Model before everything crashed around their ears.
I will say Yes and No, first off where was the responsibility of the banking industry in the first place? It seems to me they gave money out like water, not then just shut the tap off completely with no recourse. I equate it like a giving out free heroin and then making everybody stop cool turkey. But to make a one point I like to make clear this something the media likes to keep saying while it is true that all the credit lending and bad loans was one factor to where we are today, it is not the only factor. It is what the banks and Wall Street did with these loans, selling mortgage swaps as the next best thing this is where the big money was lost. Now getting back to why I say yes, and I am on board with the President we need to be responsible, but we also need to wean people off too and help them out. So yes loans should be made with the purpose of consolidation and forgiveness, if we are going to forgive Bank debt then we need to forgive private debt too, one should not prosper over the other.
Seriously, give the bailout bucks to the smaller banks that didn’t get caught up in the dirty world of complex derivatives. The smaller regional and community banks should get the money, NOT the large Wallstreet banks that caused the problem. Rewarding the perpetrators of this mess is an insult to every taxpaying American. In addition, all big banks should be immediately made smaller so they are not ever again TOO BIG TO FAIL. I need to see some bankers take responsiblility for this craziness and never be allowed to do this again. They have to come totally clean on what garage they are hiding.
Yes, in a tit-for-tat way. If a bank has qualified borrowers who want to borrow but the bank lacks the capital to make those loans, they should take the bailout money and make the loans. Inversely, if the bank does not need or is not willing to make loans, it should not take any bailout money. The net of this is that banks should not take any bailout money and just sit on it; leave it available for healthy banks who can use it to increase lending to qualified borrowers.
We really have the good, the bad, and the ugly. The largest ‘bad’ banks are impaired (BAC, C, GS, etc.), and the shakiest ‘ugly’ banks have died (CFC, IndyMac, ML, WM, etc.), but there are many medium and small ‘good’ banks that are growing profitably and rapidly to grab market share. Don’t throw good money after bad or ugly by bailing out the dying or dead banks: close them. Instead, our government should reinforce success and make capital available at attractive rates of interest to these healthy ‘good’ banks; that will help our economy to recover. If necessary, set up one or more new ‘good’ banks free of old problems.
I’m still hearing about banks with 3% capital ratios, mostly big ‘bad’ banks; it should be around 10%.
For individuals, we need to bring back responsibility. You can spend every dollar that you make, but not a cent more. It’s our culture; people don’t save, but avoiding overspending would be a reasonable middle ground. After all of this, I’m still a kapitalist.
I doubt that there is a single person in this country who truly wants irresponsible lending to take place. However, talk to people who are trying to get loans now, small business owners etc. I am sure that what you will find is that there are alot of people who are perfectly capable of handling debt responsibly and they should be able to get funding. A banks’ job is to loan money. With interbank rates at nearly zero, it is almost irresponsible on the part of banks not to loan; keeping that money may make your balance sheet look wonderful, but the only way a bank really has to make money is to loan it. I think that the new president should call some of the CEO’s of some of these larger banks and read them the riot act for not lending and if it does not get better, the govt. will re-fund Tarp by taking the money back. Remember now, responsible lending is what I am talking about.
Of course, NOT, but that is not what the government will do. The gun to the head will be: accepting TARP money = make loans. This government mandate will keep the recession/depression misery going for the long term since it will perpetuate exactly what helped cause the problem to begin with.
Wake up AMERICA, the government was a direct source of the financial crises we are being forced to live with now. Why would anybody EXPECT that the government could magically make it all better anytime soon? Anything the government touches usually turns to manure, it has been demonstrated time and time again. When will the majority of the people see this? It is so blatantly right in front of your eyes that you can literally reach out and touch it.
Government is NOT the solution, government IS the problem. Congress is comprised of a bunch of old idiots who care nothing of the people, except when it is time to get re-elected. Then they patronize their respective constituents just enough to get the old job back and it’s back to business as usual. It’s downright sickening. Getting voted into office SHOULD not be a job for life. Term limits need to be enacted so these bozos don’t get to ruin the country forever. We need fresh blood in there with new ideas and big ba–s to make the hard decisions that need to be made, not a bunch of white haired old guys and gals that have completely lost touch with the real world.
Congress has the most lucrative retirement plan in the world, thus that is WHY they have resisted term limits so vehemently over and over again. They never want to leave.
We shouldn’t have to always rely on voting them out of office, as that clearly gets harder and harder to do over time (almost impossible – really), so term limits would be the most efficient method to stop the insanity. If a Congressperson is that good, they can always run for re-election after skipping a term. This would cause every elected official to have to make the right choices FOR THE PEOPLE that they represent instead of for themselves.
Sorry for the rant.
i have perfect credit and can’t get a car loan brecause “the banks just aren’t lending.” at least that’s what the credit guy at the bank said.
i can understand the reluctance to make bad loans, but what about “good” loans? when are the banks going to start making loans to businesses and individuals that can afford them. THATS the problem.
Paul, I agree with you. Forcing banks to lend via nationalization or tougher conditons to President Obama’s ARRP (Asset Recovery Reinvestment Plan) would be insane and the incorrect thing to do. As you mentioned, it would exacerbate the problem, “kick the can down the road”, and cause massive imbalances in the economy.
Banks have lent as the TED spread has come down from over 453BP at the height of the crisis on 10/10/08 to around 100 BP today. The last time the TED spread was this low was around 8/15/08, before the crisis accelerated.
Politicans must show restraint in interfering with the market’s natural tendency to find equilibrium. Personal responsibility means that credit due diligence is applied when lending money. I hope our new leaders understand this.
No, they should not. If banks are required to lend, they should have stringent qualifications and require more money down, much more money. I agree with your article Paul that more loaning and consuming will only make much more trouble.
As a nation, it is time to pay up and we will suffer together as a nation.
Even if people could get loans, that is about the last thing most would want to do right now-get in debt when your job is in jeopardy, as most are.
Our government needs to stop ITS loaning as the Fed’s debts are much worse than ours.
Obama seems to speak grandly and eloquently but does he really know what he is doing? We will find out very soon…this mess is way bigger than anyone realizes.
NO!!! Our nation is swimming in DEBT. That is precisely what got us into the mortgage debacle and led to the chaos on Wall Street. Every generation faces this pivotal point – they accumulate too much debt, then realize the consequences and begin to retrench. If the government keeps trying to push more debt on us, the retrenchment (i.e. collapse of various bubbles) will only be WORSE. The ONLY way to avoid a protracted retrenchment is to DEVALUE the dollar to allow debtors to pay off their debts faster – of course, at the expense of investors and savers. THAT is the only choice government has – DEVALUE OR let time and debt servicing take its natural course.
I never expected the banks to lend it out either, in a recession banks are right to slow lending. The Austrian economist Ludwig Von Mises agrees, in his book “Interventionism” he explains that banks must stop unbridled credit expansion to avoid an even worse crisis. Although he does warn that we can still expect a depression, just not as bad as it would be if the banks keep lending irresponsibly.
I think the author of this story needs to get out of the cubicle and see what is really happening in the “nuts and bolts” of the economy. Many good loans are being left unmade — that directly effects (in a large measure) spending, employment, and the economy in general. Again, good loans are not being made.
I think your partially wrong. The banks shouldn’t make dumb loans, but I think what the government is trying to say is loan out to those that need it.
For example, my friends uncle owns a manufacturing company. He is small, and has about 1000 employees. He borrows about $400k a year to buy the raw materials and sells them. He was telling me at the end of last year, he couldn’t get a loan because the banks wouldn’t lend out. He had to lay-off half of his employees, because he couldn’t get the loan to buy more raw materials.
Keep doing this over and over again and you get our un-employment rate go up and the cycle of recession begins.
Typical Washington Bureaucrats that think more loans is the solution. Lending more than what could be paid back was what caused the the problem in the first place. States, businesses and citizens borrowed their way into this mess how can this possible be the solution to fixing it. They all tried to borrow their way into prosperity last time around and the current environment proves it does not work.
Not everyone can afford/deserves a new car, home, iPhones for every family member, TV in every room, Xbox for each kid because if they have only one they will argue, dinner out 5 nights a week. There is an underlying message in all this….people are too lazy. It takes work to maintain a car why bother buy a new one. It takes work to maintain a home why bother buy a new one or take out a home equity loan so you can a 500% mark up to have someone do it for you. It takes work to cook dinner it is easier to stop on the way home. It takes work to raise kids and teach them to respect each other and to share. It takes work to teach a kid that living within their means is the only solution but why bother their friends have iPhones why not their kid. They should not be deprived of a $500 dollar phone if all the have to do is charge it and pay 22% interest to have it now instead of saving for it. People need to get off this I feel sorry for myself or you only live once attitude because keeping up with the Jone’s will only furhter sink this economy with people trying to live outside their means through debt purchasing.
Alpret and Sumacrist are correct and hit the nail right on the head. So how come the 535 people who are charged with running this country fail to see this obvious point, or if they do, choose to ignore it? Obama can’t have it both ways. We know that borrowing and spending got us to where we are now, to continue on this course would be insanity. Responsible people who have saved and are relatively debt free with good credit scores have no need or desire to borrow recklessly to promote an obviously flawed economic plan. Tell America the truth, the large banks are insolvent. Either nationalize them or let them go under.
There is no argument that banks should not be making more risky loans. However, the intent of the gov’t funds is to make more credit available, not to shore up failing banks. It would make more sense to provide additional capital to those banks that have been well run, aren’t in trouble, and could make more loans if they had the capitalization to support them.
Managing balance sheets was always supposed to have been a top priority for banks. When do bankers start going to jail for putting fraudulent assets on those balance sheets in the first place, by the way?
Of course, Paul’s comments are right in line with the Paulson theme of privatizing profit while socializing risk. We shouldn’t ask banks to participate in the real economy while they’re busy bandaging their self-inflicted wounds with taxpayer dollars.
But wait! If the real economy continues to tank because banks aren’t lending, does that somehow not lead to more loans going bad, and more erosion of balance sheets? How does that help the economy, exactly?
The answer is, of course, it doesn’t help. Paul’s perspective on this is too narrow, because the banking system’s solvency rests on maintaining what quality remains on their balance sheets, and that depends on providing liquidity to the real economy. For the banks to stop performing their lending function would be as corrosive to their balance sheets as further reckless lending.
Lost to the bank managers is the distinction between good and bad loans. If they were to acknowledge that distinction, they would face hard questions about why they originated loans so recklessly during the early years of the 21st century, and the answers to those questions would send some bankers to prison.
There has to be a middle ground, where banks lend responsibly, but fulfill their commitments to their customers’ continued liquidity. If the banks resume lending recklessly, obviously there will be consequences, but if they refrain from lending, that has consequences, too.
The one thing banks would get out of dedicating themselves to cleaning up the balance sheets would be the opportunity to point the finger at others, when the loss of systemic liquidity triggers further collapses in the real economy.
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Forcing banks to lend is what got us into this housing mess back in the late 70s and 80s. Congress put a lot of pressure on the banks to lend more money and get people into homes. Oh, my, oh, my, look where that plan got us. Then Barney Franks and his relationship with Fanny May. Nice work Barney. Lets get the lawbreakers out of Lawmaking first.