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I hear this a lot these days: "You supported the bailout. Why aren't banks lending again if we gave them the money?"
Here's a pretty good response to that:
It's too bad that apparently no member of Congress gets any of this...
Here's a pretty good response to that:
"Is it not shameful that our financial institutions receive capital infusions from the government and, instead of lending the money out, they hoard it?"
I hear this complaint a lot, and the government has not done a very good job of responding to it. My view of government intent is that the capital infusions were meant to be "hoarded," defining that word as adding to the firm's capital rather than adding to its loans.
A necessary backdrop: The financial crisis began in the home mortgage market and then spread like wildfire to engulf the entire financial system. The core reason for the conflagration was that financial institutions were over-leveraged -- meaning that their debt was excessive. They were also under-capitalized, which means the same thing.
The justification for the capital infusions is that it will increase capital, not loans. The goal is to avoid future shocks arising from the failure of under-capitalized firms. The fundamental purpose is to prevent the crisis from getting worse. Other measures are needed for a cure.
I hear this complaint a lot, and the government has not done a very good job of responding to it. My view of government intent is that the capital infusions were meant to be "hoarded," defining that word as adding to the firm's capital rather than adding to its loans.
A necessary backdrop: The financial crisis began in the home mortgage market and then spread like wildfire to engulf the entire financial system. The core reason for the conflagration was that financial institutions were over-leveraged -- meaning that their debt was excessive. They were also under-capitalized, which means the same thing.
The justification for the capital infusions is that it will increase capital, not loans. The goal is to avoid future shocks arising from the failure of under-capitalized firms. The fundamental purpose is to prevent the crisis from getting worse. Other measures are needed for a cure.
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