There’s nothing prudent about making bad loans. The bailout money maintained solvency during a period when many assets became unsellable. My goodness I hate hearing people say banks are obligated to make bad loans. They were too loose with credit, and that has changed. At least they aren’t insolvent! GEEZ.
There are two sides : the banks are reluctant to lend, and businesses/consumers are also more reluctant to borrow : especially given the high interest rate they’re facing. Then again, why would any bank want to lend out any money when they can make a profit simply by parking their cash with the Feds?
KenHo proving he doesn’t know much about capital markets. Levels tell us nothing about flows in this situation. Over the past year there have been record amounts of consumer and business loans wiped off the books because of bankruptcies and foreclosures.
This graph doesn’t tell you what KenHo wants you to think unless you hold busted loans constant over time. And if you do that over the time period showed you have your head up your ass.
Ronnie: Condition that statement on small business and you are ok. CP spreads are down to 10 basis points on top of the lowest T-bill yields ever. IG corporate bond spreads are done around 190 bp on top of long-term Treasury yields that are only going higher. Interest rates will not go much lower for the big guys. Any gain in spreads will be offset by rising Treasury yields.
That was not me. You should know by now that it’s not my style to use different user names; that is until the old one stops working. Also, If I disagree with an author I tell them so.
Coberly tells us that whatever imbalance may exist with social secruity it can be fixed by paying something like 20 cents a week (the price of a bottle of table wine). I looked again and Bruce Krasting thinks the problem is more serious.
Again, I would like to see some other experts second Coberly’s opinion before we accept it as settled fact (Bruce does not count).
Consumers are buying less as the try to build savings or have lost their jobs. With fallen consumer purchases businesses don’t need to expand to meet diminished consumer demand. Therefore, Ken’s graph makes perfect sense.
Consumers are buying less as they try to build savings or have lost their jobs. With fallen consumer purchases businesses don’t need to expand to meet diminished consumer demand. Therefore, Ken’s graph makes perfect sense.
***Again, I would like to see some other experts second Coberly’s opinion before we accept it as settled fact (Bruce does not count).*** Cantab
I’m not an expert, and you wouldn’t take my word either. But this is something that you can figure out for yourself. You are (often deliberately I think) obtuse, but you are not stupid.
Basically, OASDI is pay as you go plus a small operating reserve and a “trust fund” for boomer retirement that both political parties have cheefully raided to cover boomer retirement. Pay as you go means that future payouts are made out of future payins, not out of some mythical pool of savings. The only pool of “savings” is the IOUs (treasury bonds) left in the Social Security piggy bank after looting the boomer’s excess payins. Bruce does not agree with that intermpretation of the trust fund BTW. I think he is quibbling.
AFAICS, the only thing that breaks such a system is if unemployment becomes so widespread that future payins don’t cover payouts.
That seems to be the way that most country’s retirement schemes work — which is not surprising as the investment pool if retirement savings were actally saved would surely lead to a huge overinvestment in production and real property. Too much money chasing too few good investments. I can’t see that resulting in anything other than a huge bubble and a cataclysmic crash. I could be wrong about that. It could lead to something worse.
The best known exception is Chile which has mandatory payins to private pensions. The problem with Chile is that the claims of the advocates and critics of the system are so far apart that there seems to be no way to resolve how well it is actually working. I’m reasonably convinced that the advocates are lying. I am not sure that the critics aren’t.
The UK and some other countries permit some retirement money to be diverted from their version of Social Security to private investment. My impression is that these schemes have not worked brilliantly. And I’m not sure that they are that different from the US’s ludicrously complex 401K/IRA/roth IRA schemes although the details certainly differ.
However, the claim is that banks not only have decided not to make bad loans. They have quit making many good loans as well. The complaint is that their making those loans was part of the quid pro quo for bailing the morons out.
I find myself in agreement with Krugman. We need the banks. But bankers are fungible and the ones we have are in serious need of funging. Nationalize the banks — at least the bigger ones. Audit their books. Turn the solvent and near solvent ones loose. Fire the management at the rest. Recapitalize to the extent necessary. Then regulate the hell out of these things — including dictating fees and interest rates on consumer accounts if that’s what it takes to get the banks operating like productive members of society.
Since “transparency” seems to translate into “there should be no way the public is entitled to know if the banks are solvent.” I think we can safely assume that we have a significantl number of zombie banks enabled by compliant accountanting. At the very least that needs to be cleaned up.
Most banks in 2009 felt keeping their capital up to cover bad loans was their job. Staying solvent was more important than making loans. Whether they overdid the hoarding of money I can’t say. Most still tend to do it whether politicians like it or not. I presume most banks watched their Texas ratio above all. They needed equity and loan loss reserves to be high to keep that ratio down.
You also need to realize that with the recession and many businesses on the verge of bankruptcy the opportunity to make good sound loans was reduced. A bank worried about its solvency is not going to take many risks.
This picture is not worth a thousand words. Not without a few words to go with it. What point are you wanting to make?
I’m scratching my head…Help a less wonkish brotha out!
I don’t know, maybe, stay in business?
The jobs (sic?) of the banks in 2009 was to use bailout money to keep loaning money and subsequently unfreeze credit. Is that the general idea?
Coincidentally, I looked yesterday at bank lending and GDP for the UK, 1964 – 2008. Looks as though all that pump priming does is get your feet wet.
http://broadoakblog.blogspot.com/2010/01/debt-financial-sector-and-economic.html
I enjoyed reading this piece: http://www.zerohedge.com/article/im-no-chicken-little
It really shows what angrybear is worth.
There’s nothing prudent about making bad loans.
The bailout money maintained solvency during a period when many assets became unsellable.
My goodness I hate hearing people say banks are obligated to make bad loans.
They were too loose with credit, and that has changed.
At least they aren’t insolvent! GEEZ.
There are two sides : the banks are reluctant to lend, and businesses/consumers are also more reluctant to borrow : especially given the high interest rate they’re facing. Then again, why would any bank want to lend out any money when they can make a profit simply by parking their cash with the Feds?
Hi cantab. Still wrong however.
Rdan,
That was not me. You know by now its not my style to using different user names, that is until the old one stops working.
KenHo proving he doesn’t know much about capital markets. Levels tell us nothing about flows in this situation. Over the past year there have been record amounts of consumer and business loans wiped off the books because of bankruptcies and foreclosures.
Ending balance = Beginning balance + new loans – busted loans
This graph doesn’t tell you what KenHo wants you to think unless you hold busted loans constant over time. And if you do that over the time period showed you have your head up your ass.
Ronnie: Condition that statement on small business and you are ok. CP spreads are down to 10 basis points on top of the lowest T-bill yields ever. IG corporate bond spreads are done around 190 bp on top of long-term Treasury yields that are only going higher. Interest rates will not go much lower for the big guys. Any gain in spreads will be offset by rising Treasury yields.
Rdan,
That was not me. You should know by now that it’s not my style to use different user names; that is until the old one stops working. Also, If I disagree with an author I tell them so.
Coberly tells us that whatever imbalance may exist with social secruity it can be fixed by paying something like 20 cents a week (the price of a bottle of table wine). I looked again and Bruce Krasting thinks the problem is more serious.
Again, I would like to see some other experts second Coberly’s opinion before we accept it as settled fact (Bruce does not count).
Consumers are buying less as the try to build savings or have lost their jobs. With fallen consumer purchases businesses don’t need to expand to meet diminished consumer demand. Therefore, Ken’s graph makes perfect sense.
Consumers are buying less as they try to build savings or have lost their jobs. With fallen consumer purchases businesses don’t need to expand to meet diminished consumer demand. Therefore, Ken’s graph makes perfect sense.
***Again, I would like to see some other experts second Coberly’s opinion before we accept it as settled fact (Bruce does not count).*** Cantab
I’m not an expert, and you wouldn’t take my word either. But this is something that you can figure out for yourself. You are (often deliberately I think) obtuse, but you are not stupid.
Basically, OASDI is pay as you go plus a small operating reserve and a “trust fund” for boomer retirement that both political parties have cheefully raided to cover boomer retirement. Pay as you go means that future payouts are made out of future payins, not out of some mythical pool of savings. The only pool of “savings” is the IOUs (treasury bonds) left in the Social Security piggy bank after looting the boomer’s excess payins. Bruce does not agree with that intermpretation of the trust fund BTW. I think he is quibbling.
AFAICS, the only thing that breaks such a system is if unemployment becomes so widespread that future payins don’t cover payouts.
To verify all that, you can start with Wikipedia and research from there. http://en.wikipedia.org/wiki/Social_Security_(United_States)
That seems to be the way that most country’s retirement schemes work — which is not surprising as the investment pool if retirement savings were actally saved would surely lead to a huge overinvestment in production and real property. Too much money chasing too few good investments. I can’t see that resulting in anything other than a huge bubble and a cataclysmic crash. I could be wrong about that. It could lead to something worse.
The best known exception is Chile which has mandatory payins to private pensions. The problem with Chile is that the claims of the advocates and critics of the system are so far apart that there seems to be no way to resolve how well it is actually working. I’m reasonably convinced that the advocates are lying. I am not sure that the critics aren’t.
The UK and some other countries permit some retirement money to be diverted from their version of Social Security to private investment. My impression is that these schemes have not worked brilliantly. And I’m not sure that they are that different from the US’s ludicrously complex 401K/IRA/roth IRA schemes although the details certainly differ.
However, the claim is that banks not only have decided not to make bad loans. They have quit making many good loans as well. The complaint is that their making those loans was part of the quid pro quo for bailing the morons out.
I find myself in agreement with Krugman. We need the banks. But bankers are fungible and the ones we have are in serious need of funging. Nationalize the banks — at least the bigger ones. Audit their books. Turn the solvent and near solvent ones loose. Fire the management at the rest. Recapitalize to the extent necessary. Then regulate the hell out of these things — including dictating fees and interest rates on consumer accounts if that’s what it takes to get the banks operating like productive members of society.
Since “transparency” seems to translate into “there should be no way the public is entitled to know if the banks are solvent.” I think we can safely assume that we have a significantl number of zombie banks enabled by compliant accountanting. At the very least that needs to be cleaned up.
Most banks in 2009 felt keeping their capital up to cover bad loans was their job. Staying solvent was more important than making loans. Whether they overdid the hoarding of money I can’t say. Most still tend to do it whether politicians like it or not. I presume most banks watched their Texas ratio above all. They needed equity and loan loss reserves to be high to keep that ratio down.
You also need to realize that with the recession and many businesses on the verge of bankruptcy the opportunity to make good sound loans was reduced. A bank worried about its solvency is not going to take many risks.