Why the banks are not lending??

[kentuck]

Is it really because they do not have the funds? Will it really help to give them another couple of trillion dollars?? I have my doubts.

The banks are running scared. They do not know to what degree their assets are threatened and they have withdrawn into a tight protective circle to protect their present assets. Many have no idea to what extent they are invested in the global economic debacle.

Fear. That is why they are not lending. The fear of the unknown. They have been compromised by the actions and decisions of their CEO's.

In my opinion, this needs to be addressed before another trillion dollars is handed over to these financial giants. Why are they not lending?

[anonymous171]

1. Because we aren't forcing them to. We should issue an ultimatum: Lend or be Nationalized. nt

[leveymg]

2. They now have $800B in surplus reserves to blackmail us into giving them more.

They should be afraid. Of what the American people are about to do to them.

[Warpy]

3. Banks have asset columns that are heavy with

hedge fund and other paper that is so exotic that nobody has a clue which paper is good and which paper is a bunch of worthless derivatives based on bad housing loans. They're not lending because they're terrified they don't have a legal asset to debt ratio, and if that is discovered to be the case, they will go under.

There is no Chapter 11 for banks. Banks just fail and are either bought out or simply disappear, leaving depositors waiting for FDIC payments that might be years in coming through.

That's why the only way we'll free up credit in the short term and insure solvency in the long term is to nationalize the banking system temporarily, suspending trading in their stock for the duration and only returning them to the private sector when their balance sheets are once again healthy.

Just throwing money at their balance sheets is not going to work, short or long term, because they have no idea just how bad it really is.

[kentuck]

7. The best idea I have heard thus far.

Nationalize them if they are as impotent as they appear.

[Gormy Cuss]

4. They're running scared alright, but it's fear of the known.

Warpy summed up the situation.
They do understand how high the risk is and have been circling the wagons.

[TBF]

5. They know. It's time to put them out of their misery. n/t

[KharmaTrain]

6. Part Fear, Part Reality...

First of all, the banks haven't gotten a trillion dollars...only 350 billion at this point, and that's still a lot of money. In many cases, that money was used to shore up banks from becoming fully insolvent...leading to a run on the banks. It stopped the market from sliding downward and the flow of what remaining capital there was out there into mattresses.

The problem is no one knows how deep the debt bomb...or as Atrios abptly calls it "Big Shitpile" goes...thus it's hard go gauge what is solvent and what isn't. As long as banks have loads of bad debts on their books, and they're liable to cover those losses, they will remain insolvent as they have no real clue how big those liabilities are...and in turn need to avoid spooking other depositors and investors and their money away. It's why they're not lending and it's paralyzed the business world.

As long as sub-primes are resetting, debts are soaring and bankruptcies grow, the solvency issue becomes even more accute. Thus, eventually I suspect the government will have to nationalize the banks and seperate the good from bad debts to help them get solvent again. While the banks are a target of evil, they're also the catalyst of the local economy...and when they're not lending, it strangles those economies.

Too many are confusing the need for steadying the financial market with the need to stimulate the economy. The credit market has to be restored...both financially and emotionally...before a stimulus can really take hold.

Will it take a trillion? People like Paul Krugman don't think so...he thinks it'll have to be more. One thing for certain...the amount just released...another 350 billion is just a band-aid on a still hemoraging wound. That's why the markets tanked yesterday.

I'm fimrly with you on the need to hold accountable those who created this financial catastrophe...and slowly we're learning the names and faces of these vermin. Their day is coming...but right now, we've got an economy in the tank, the longer we do nothing, the worse it will get.

Cheers...

[NNN0LHI]

8. You want to know what I think?

I think countries who we sold all these crap assets to like Japan, China, Saudi Arabia, etc. are getting more pissed off by the day and are threatening to fuck us real good if we don't buy the shit we sold them back.

Thats what it seems like.

Don

[kentuck]

9. From a news story yesterday...

about the electronic "run on the banks" and being only a couple of hours from collapse of our economic system. It sounded like economic terrorism, planned to destroy our nation.

[wiggs]

10. They are lending in certain ways. People who have a lot of equity and solid income have

been refinancing to lower rates and saving money. Mortgage brokers have been busy.

Sounds like businesses and developers are not getting business loans.

[slackmaster]

11. They are, but only to people with sterling credit

And reasonable loan-to-value ratios on secured property.

[RaleighNCDUer]

15. Which is what they should have been doing all along. nt

[kenny blankenship]

17. In a depression they say the only people who can get a loan

are people who don't need one.

[fasttense]

12. The banks are not lending in the same amounts they use to because....

the American middle class has no equity left to take a loan out on. When houses were rising in price every day, equity was accumulating from the moment the house was purchased. But with houses going down in value, there is no equity left to borrow against. True, a few people have some equity and the uber wealthy can always get credit but it wasn't the uber wealthy who provided 70% of GDP to this country. It was the American Middle Class.

So the majority of the American Middle Class has no more equity to borrow against and their jobs are disappearing. The American Middle class is tapped out. Would you give a loan to someone like that in today's economy?

[kentuck]

14. I think that is a good point.

There are many people who do not wish to borrow or do not have the capacity to borrow.

[KatyMan]

18. I work for a bank

and we were told a similar thing: they have money to lend, but people aren't borrowing for things like a new boat, or house addition, or whatever. I guess it makes a kind of sense.

[slackmaster]

19. Sorry to hear that

I did my time - Almost eight years.

[KatyMan]

20. It's not so bad so far

I haven't been here long, and I'm in IT. It's nice to have any job nowadays!

[Deja Q]

21. Many, but not all.

While things aren't exactly great right now, they're not appalling.

Getting a loan and paying as one goes along doesn't hurt either.

Granted, the middle class has indulged too much (who needs 8 computers when 3 with virtual machines will do just as well... or a boat, just rent one, et al), the banks have been far greedier -- hawking a $750k home to a young adult making $15/hr is really tacky. That was NOT done 20 years ago, and not because there weren't as many homes sold for that price (which probably weren't worth that price to begin with).

[spanone]

13. my sister just got a car loan

[kenny blankenship]

16. For one thing they are holding on by a thread

If real estate goes down another 10%, they are wiped out. (unless Uncle Sucker graciously takes all their toxic asset mortgage backed securities off their hands)
For another, borrowers in aggregate are still indebted at levels where their activities for generating income can't pay back their existing interest. This is the fate of a country with stagnant/falling wages for ordinary workers. We've all seen this graph of total debt as a percent of GDP:

Obviously we are standing atop of pile of Everests made of debt. The only other point on the graph where it was like this was 1930--which is that spike on the left side of the graph. You see the total level of credit climbing for the moon, but as the crash turns into the Depression total credit plunges downward again. What we want when we want the banks to lend is to make that mountain of debt we're on even higher. But they are looking at the rate of defaults and thinking whatever it is that borrowers in the US do to make money to pay back interest and principle it isn't enough. Credit freeze is a macro problem, but so is default. Crooked lending practices may be the root of the crisis, but the trigger for this chain of calamities was a wave of defaults. The pay of the American people, or corporate revenue of American businesses is not able to keep pace anymore with their indebtedness. You may be a good credit risk and deserve a loan but, on average, your neighbor is not. Before lending again banks would probably wait for that rocketing slope of indebtedness to rocket back down, which it will accomplish eventually through the miracle of bankruptcy. Of course by not lending the banks are guaranteeing, whether they mean to or not, that payrolls will be slashed and slashed again and bankruptcies and credit destruction will accelerate down a slope that mirrors in reverse the steep rise that preceded it. The destruction of credit means the destruction of money, which means that the MBS "assets" they're stubbornly refusing to acknowledge as damaged/worthless today will in a little while surely decline more than that 10% mentioned at the top, which in turn will make them formally and officially extinct.

These are reasons #236 (banks are already zombies) and #237 (they will take the rest of us down with them before beginning to lend again) why the banks must be nationalized to preserve a future for the United States of America.

[Orsino]

22. They're not sure we'll be able to pay back the loans...

...and that the houses we put up for collateral won't be worth the balance. Double whammy.

edit: or that the dollars we pay back later will be worth the same as the dollars they lend now. Triple whammy.

[earth mom]

23. Because the economy hasn't hit rock bottom yet.

Why should they loan money now when everything is gonna be worth pennies on the dollar soon? :grr: