@22: Rajan: - Here lies the crunch. The banks are not as yet willing to advance any credit to medium and small scale enterprises and businesses. …they got burnt and themselves into the present mess by giving loans to people with poor credit (of course, out of greed to earn fat bonuses)…
Hardly.
Paulson did not “change tack”. He did not foresee this insane “stimulus” package back when TARP was suggested because there was no need for a gargantuan “stimulus” last fall. There still isn’t. What we need are major income, capital gains and corporate tax cuts and a reduction in the size of government as well as its insanely huge entitlements programs.
Banks are still not lending much, overall, because TARP was rushed through without any thought whatsoever given to The Law of Unintended Consequences. Just like this fake “stimulus” package.
Instead of focusing funds on banks that would be in the best position to provide credit afterward, the first $350B in TARP funds was spread indiscriminately over 100s of banks. Most of that money is balancing these banks’ books to make them financially viable again, not being loaned out as credit. If they simply loan that money out in a failing economy, they’re back where they were. They won’t be providing credit until deposits pick back up, which requires people to put money into savings and investment accounts. So TARP has only done have the job it needed to do.
The credit problem arose because loans were given to millions of borrowers who would not have qualified without the government regulations imposed by CRA – a federal affirmative action program ostensibly intended to provide “affordable mortgages” but, in fact, intended to purchase votes for Democrats from minorities and the so-called “poor”.
These regulations neglected to factor in the reality of interest rate fluctuations – particularly in the context of sub-prime loans. Rate fluctuations turned those “affordable” mortgages into untenable burdens when interest rates doubled over the three years from mid-’03 to mid-’06. This was because CRA didn’t include anything that required the mortgages to remain “affordable”. Duh.
An avalanche of defaults and foreclosures followed, followed by a burst of the housing bubble, followed by the devaluation of hundreds of billion$ in securities based on those (now toxic) mortgages, followed by a meltdown of the credit sector. It had little to do with “greed”, other than the left’s greed for political power, exhibited by vote-buying regulations like CRA.
