Question for Kim: “With all this bailout cash the banks are getting, how come they aren’t lending buckets of money out yet?”
My answer is that I think I have figured it out so bear with me as I explain it. They are sitting on cash or they are investing it in US Treasury instruments. Like you, I thought at first that this might be a bad idea but if you stop and think about it, this may (and the operative word here is MAY) be the way to go for a very short time to try and balance between the depression we are in and the huge monster called inflation waiting just around the corner. I still think it isn’t fair that the banks get to have a huge cash rebate while the rest of us are scrambling to see what we need to do because the money rules changed over the last ten years (maybe more or less).
As I’ve stated in another article, I think we are in financial constipation mode. The money from the Fed is “stuck” if you will in banks who are scared and waiting to see what else the government is going to do. Right now, some banks are taking the money they have received and turning around and buying T-bills. That may not be a bad idea because the Federal government needs to get money invested back in itself. As we all have seen, the Fed (and other governments) can always print more money when they need it. The trick is to use it to fight inflation.
There isn’t really a trick that they can pull out of their hat to fight deflation other than to get more money into the system. And there is the problem. There is already plenty of money out there so by rights, things should be adjusting up in cost. They aren’t yet because people don’t have the money to spend. Companies (well some of them) don’t and the Fed is trying to get more money coming in for them to use so the US dollar doesn’t stay flattened like a leaky tire.
The next step for the Fed and the banks should be to get their proposed infrastructure programs going and this time, keep the money domestically and fairly distributed so locals (that is people in the United States) can benefit from the money and not outsource the business to countries that will turn around and bad mouth us anyways.
As you know, I am an open minded international kind of guy but right now, if America falls too much further financially, the rest of the world will have big problems as well so we have to take care of things here at home first.
It is only a few more weeks until our Presidential Elect gets sworn in to become President and he is already hustling on getting some programs going. The finalized tax regulations for the Fed should be coming out soon (fingers and toes crossed) and we can see there what might be on the books to help individuals directly.
None of this will be an overnight fix, so make sure that you have enough in savings and access to food, clothing and shelter. It isn’t the end of the world. It just seems like it these days.
Remember, we as a nation, will have a lot of debt. We can always print more money to make the money, well, not as valuable, as it was to minimize the debt income. We just aren’t there yet and nobody is quite sure what is going on or what will work or won’t.
So, back to your original question, when will they start lending again? (I get asked this alot these days). Some of them are, though they are more stringent with their requirements. If the auto industry gets their cash infusion or a piece of it (they may need to wait for the lame duck Administration to leave) there may be more cash going out in the next few months. Remember that banks are in business to make money and they are over-reacting just like you or I would. They were lending all kinds of money almost as speculators during the real estate boom and credit card issuance boom. Now, they are freaking out and they may, in some cases for those of us with decent credit, be throwing the baby out with the bathwater by cutting their credit and not issuing money to people who need it.
People have long memories when it comes to who helps them out in a financial pinch and they will learn that some banks may have a harder time getting and retaining their clients unless they really have great interest rates or go back to giving free toaster ovens.
Kim Isaac Greenblatt
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