Sunday, July 19, 2009

Missed the point again

Banks may be too weak to support the recovery

True to long term form, David Smith succeeds in completely misunderstanding the current crisis. He still retains the notion that there are credit taps somewhere in a lobby in an office block in the city that just need a good bash with a wrench and a drop of oil to get the money flowing again and - basically - back into the housing market. Didn't the rest of the media already identify about a year ago that this is categorically NOT going to work? He then argues (not very well) that the UK's banks are too small, as opposed to being too big! Why is Smithy so slow on the uptake?

Posted by paul @ 09:39 AM (1151 views)
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6 thoughts on “Missed the point again

  • stillthinking says:

    Unfortunately there seem to be many that assume because a growing economy(amongst other less worthy causes) expands credit, that therefore expanding credit will grow the economy. It won’t though.

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  • That’s the point precisely stillthinking.

    That pesky transmission mechanism will stop any hoped of reflating the economy by expanding credit, because the appetite for more credit has long since left the building.

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  • Why is Smithy so slow on the uptake?

    Because he is a VI??

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  • Anyone who uses a “skip index” as Smith did a few years back is a half wit.

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  • Sorry, that should have read:

    Anyone who uses a “skip index”, as Smith did a few years back, as an indicator of economic health is a half wit.

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  • Around the world banks generally are making the loans they are allowed to make within the limits of their deposit and capital bases. What has left the credit scene are the investors who until two years ago bought huge amounts of bank loans bundled into securities, thus taking loans off the banks’ books and making room for more loans within their deposit and capital limits. Before the credit crisis the banks in the US provided about $8 trillion of the $25 trillion loans outstanding there. Of the other $17 trillion, $7 trillion came from traditional bond markets and $10 trillion came from the relatively new securitised loan markets.

    Banks are still lending but the most of the source of the other $17 trillion isn’t there anymore. Investors won’t buy the loans and this forces banks to keep them and take the resulting losses.

    http://bulletin.aarp.org/states/hi/articles/banks_still_standing_amid_credit_rubble.html

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