Sunday, December 28, 2008
The latest episode of TigerHawk TV is up -- I know your weekend is not complete without it -- and this time I address the vexing question, "with all this new government money, why aren't the banks lending?" It is a timely question; Niall Ferguson raises it in his excellent speculative "look back" at 2009, I discussed it in a post about six weeks ago, and you can be sure that if the situation does not change politicians and reporters will complain loudly whether or not they actually understand what is going on. Your comments -- on the substance, the format, or my personal grooming -- are, as usual, more than welcome.
Yes, that sweatshirt does say "The Factor Staff" on it, but I am not actually on the staff of "The O'Reilly Factor," which is a shame because then I would actually have met Megyn Kelly. I think I got it for knowing the fellow who writes the O'Quiz, which makes me a "Factor Web Site Staff groupie," which is much less impressive.
Very enlightening presentation of an extremely abstruse topic.
Just a technical note: the audio track of this video is distractingly noisy. Probably this is a function of having the gain cranked way up on the microphone because it is too distant to pick up your voice. I'd recommend a cheap lavalier mic as an easy work-around for this ... otherwise, you could probably use a noise-reduction plug-in like BIAS Peak's SoundSoap; depends on what video editing software you are using.
So...it's not because bankers are tools...using the TARP as cover the way one of those evil minority babymachines (who defaulted on her subprime mortgage) uses her WIC card to buy liquor? I blame myself for misperceiving the crisis. ;-)
The last thing you want to do is buy into the second coming of Herbert Hooverism.
So the banks are buying old loans instead of generating new ones, so that they're not creating any new risk. Fine.
Does the new bank, the one that now holds the loan, assume the same relationship to the borrower in the form of extending lines of credit in the form of commercial paper/ or other functioning business loans? If the new banks don't support the businesses that owe them money in a responsible way, and the business fails, then aren't they just as screwed as they would have been with a new loan?
For that matter, how do the banks know that the loan that they're buying is any good? Please don't say that Standard and Poor slapped a AAA on it!
The point that I'm trying to make is that they're buying these loans with TAX PAYER MONEY! We handed them this lump of cash so that in this time of emergency things would continue to work. Aren't they obligated somehow to make sure that that happens?
I don't see how those old loans are any less risky than a new one if the research wasn't done, or if it was garbage research in the first place, or if those loans aren't serviced in such a way that keeps them out of default.
Is there any oversight that might provide for any of this?
"Aren't they obligated somehow to make sure that that happens?"
I suspect, even hope, that they've been scared into playing things more safely, and that means move slowly. They've still got plenty of time before they miss the boat of the economic rebound and lose out to rivals.