Tuesday, October 28, 2008

Still no lending, bailouts to banks going under their matress

One Day Doesn’t Make a Trend

The dirty little secret of the government’s $250 billion handout to nine banks to get them lending again is this: So far, they have stuffed it under their mattress like the rest of us. Need a mortgage? An auto loan? If you are a business or consumer, it’s almost as hard to get a loan this week as it was last. “It doesn’t matter how much Hank Paulson gives us,” said an influential senior official at a big bank that received money from the government, “no one is going to lend a nickel until the economy turns.” I bet UK banks are no different, despite the little clause that makes banks lend at 2007 levels in the UK bailout agreement.

Posted by mountain goat @ 01:28 PM (1253 views)
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11 thoughts on “Still no lending, bailouts to banks going under their matress

  • mountain goat says:

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  • mountain goat says:

    “Barclays is seeking investment from two state-backed Russian banks to shore up its capital base.” – WSJ

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  • This article seems to assume that people would borrow if only the money were there. I beg to differ – I think people are spooked, the tide has turned. If people do not want to borrow, then dropping rates will make no difference whatsoever and obligating the banks to lend at 2007 levels will be utterly fruitless. Neither then can inflation take hold. Just as people were gripped by a need to spend, fear can just as easily lead to a frenzy of saving. Perhaps we will eventually see negative interest rates?

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  • mountain goat says:

    Shipbuilder – “people would borrow if only the money were there”

    Maybe you are right for things like cars, but mortgages are different I think. People coming to the end of teaser rate period of an ARM for example.

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  • 3. shipbuilder

    You assume that most people know what a recession is – all most people know is that so and so down the street has this new car or ipod and off they go to the bank.

    How else can you explain why there are so many repossessions when the real economy hasn’t changed an interest rates are so low. They couldn’t care less just show them the money!

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  • The psychological framework behind the social engineering of rampant consumerism is extremely powerful and well organised.

    Many, probably most people are living a life determined for them by others they never see.

    They think they are OK so long as they can borrow to consume. Sad

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  • Kall: Now Ben Bernake studied the Depression and during the Depression, they did something like this but the government did have control, isn’t that right?
    Klein: Exactly; and even if we just compare what Paulson did to what Paul Brown did, just on the straight level of what taxpayers are going to get paid back Gordon Brown and British taxpayers are getting 12% and American taxpayers are getting 5%.
    Kall: Woo!

    We are only interested in what’s good for taxpayers, but as I said, you know, Gordon Brown got a deal for British taxpayers that’s you know, more than twice as good.

    Kall: ‘I haven’t heard that reported, anywhere.

    Klein: You know what; I read it in Financial Times, OK? In an editorial in the Financial Times today they remarked on that. But the point is that there is still an election; politicians are still open to pressure so they have taken a step in the right direction in going for equity, but the deal has to be much better and it has to be power as well as risk that is transferred to the taxpayer.

    opednews

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  • If it turns out that they are hoarding, you’ll have a revolution on your hands

    Nobody is saying it should make loans that people can’t repay. What I am saying is that Mr. Dimon took the $25 billion on the condition that his institution would start making loans. There are plenty of small and medium-size businesses that are choking because they have no access to capital — and are perfectly capable of repaying the money. How about a loan program for them, Mr. Dimon?

    Late Thursday afternoon, I caught up with Senator Dodd, and asked him what he was going to do if the loan situation didn’t improve. “All I can tell you is that we are going to have the bankers up here, probably in another couple of weeks and we are going to have a very blunt conversation,” he replied.

    He continued: “If it turns out that they are hoarding, you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay.”

    http://www.nytimes.com/2008/10/25/business/25nocera.html?_r=2&pagewanted=2&oref=slogin

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  • You cannot expect banks to lend mortgage money into a declining property market: they’ll not get their money bank. The banks have had their fingers well and truly burned and will have to be poked with pointed sticks before they touch anything resembling a mortgage. It does not help that
    some of the brighter bankers (rhyming slang) have probably been checking out HOUSE PRICE CRASH,at first to keep some wild company at a distance then with the dawning realisation that this subversive stuff has more than a grain of truth to it.
    Nouriel Roubini was on Dispatches last night suggesting that the staged execution of some bankers might help.But the banks will need more than this to get involved in volume mortgages for a fair while.

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  • mountain goat says:

    Malct – Yes if this becomes a public outcry and they are forced to lend the money this could set up the final bubble. The banks have finally learnt to fear risk, but they may be forced to lend anyway.

    This is similar to last week when LIBOR started to move down thanks to JP Morgan actions. JP Morgan has been a big beneficiary of the forced mergers with Bear Stearns and WaMu.

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  • BTW how will banks be able to pay 12% interest on money they received from the taxpayer if they keep it under the mattress ? Will they ask for more more money from the taxpayer so they can pay us back our interest. is this called a ponzi scheme ?or will these recapitalised bank default on their payments to us with our money ?

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