Comments on: To Lend or Not To Lend, Fed Edition

By: Aggressive Progressive

Aggressive Progressive — Wed, 10 Dec 2008 19:33:00 +0000

[...] the Economist View identified contra-dictory recommendation to banks from the Federal Reserve but Baseline Scenario thinks we should give the Fed some [...]

By: Tom K

Tom K — Tue, 09 Dec 2008 17:40:08 +0000

Self preservation is priority one in the animal kingdom and in the business world. Can’t say I blame the banks for wanting to hold on to the capital. One simply can’t say for sure at this point how bad the recession will ultimately be. Assets that still look good could become toxic. Eventually a brighter outlook will bring renewed confidence and loosen up the credit.

The reluctance to lend suggests that more capital needs to be injected into the system. Maybe a second TARP round is needed (we still have $350 billion not tapped). When banks feel confident they have adequate reserves along with surplus capital, they will start lending the surplus capital. There is simply too much potential interest income out there for them not to lend when they feel confident they have adequate reserves.

By: Yasser

Yasser — Tue, 09 Dec 2008 11:59:13 +0000

I think the credit expansion could be referring to the new credit policy, which is not reckless and therefore far less risky. Such low risk lending can be possible, in small amounts, while the bank recapitalizes. They can go hand in hand. Expansion is probably the wrong word here. Replace that with “cautious start” and statements would make sense.

By: When Does This End?

When Does This End? — Tue, 09 Dec 2008 10:28:44 +0000

Banks are holding onto inflated assets and loans, what they are forgetting is that if they don’t provide new loans those asset values will go down even further and they have to write off more losses. Credit was holding up the prices…So much for leveraging.

Current situation and questions: How many more bailouts and stimuli? Nothing seems to be working so far (it started since March with Bear). Everyday you hear more bad news and new government intervention or spending programmes. This is going to kill consumer confidence and will cause more hunkering down tendencies.
Why are these troubled Banks still paying dividends? They should be giving same money in new loans to consumers and businesses.
Citi’s shareholders got bailed out at taxpayers expense, those $309Bn assets are probably worth less than $200bn today, who know? Where is transparency? And confidence that was created using this deal is fading away again. Banks are still not lending each other, they are using central banks.
I think now we have too many Moral Issues and Hazards in this crisis and a back clash is sure to come. Risks are just growing.

Probably government should have just opened few nationalized banks for few years rather than giving money to people who brought up this mess on us in the first place.

Luckily, we sold half of those bad securities to Europe (and other countries as well, well they were greedy too)…we were doomed otherwise.

By: carrollcdc

carrollcdc — Tue, 09 Dec 2008 02:54:43 +0000

Not contradictory — they can be reconciled by cutting dividends (to zero, for a while)! Part of the (not paid) dividends go to capital boosting, part to lending. Ta dah!