Archive for 29 October 2008
Today’s Episode of “The Onion or Reality?”
| Peter Klein |
White House to banks: Start lending now
By Jennifer Loven, AP White House CorrespondentWhite House tells banks getting federal aid to quit hoarding money and start lending it
[ . . . ]
“What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House press secretary Dana Perino said.
Those silly banks; first they made too many loans, causing the subprime crisis, now they’re making too few! (Via Manuel Lora.)
Let’s review: Some banks made bad loans, and some banks bought securities tied to these loans. When the bad loans went sour, some banks failed. Instead of letting those banks fail, freeing up scarce resources to flow to other banks and financial institutions, the government tried to prop up the entire banking system. Now, when the propped-up banks decide to hoard their taxpayer-provided cash, the government wants to make them lend — to whom, it doesn’t matter. Just lend, baby, lend! A loan, you see, is just like any other loan. All investments are the same. All banks are the same. No need to separate the good ones from the bad ones. We Are the World!
A Billion Here, A Trillion There
| Peter Klein |
How expensive is the bailout? Where will the money come from?
Consider the numbers: $29 billion for the Bear Stearns mess; $700 billion to buy spoiled assets; $200 billion to buy stock in Fannie Mae and Freddie Mac; an $85 billion loan to AIG insurance; another $37.8 billion for AIG; and $250 billion for bank stocks. Hundreds of billions in guarantees to back up money market funds and to guarantee bank deposits. And who knows what expenses are still to come. . . .
How will the U.S. pay for it all? Answer: by borrowing — raising worries about how the country’s ballooning annual budget deficits and aggregating debt will affect the economy and financial markets. Some guidelines, such as interest rates and the ratio of debt and deficits to gross domestic product, suggest the new debt will be digested easily. But some experts think those guidelines are misleading, warning that obligations are piling up like tinder on a forest floor.
“This kind of accounting that the government does — if they did it in the private sector they would go to jail,” says Kent Smetters, a professor of insurance and risk management at Wharton.
From Knowldge@Wharton, which reminds us that there’s plenty more to come — a probable bailout of Chrysler and G.M., for instance. And who knows what else. Of course, the US government now has a $10.5 trillion national debt. “To economists, the most frightening fact is that the enormous cost of today’s financial rescues is just a drop in the bucket.”
Organizations and Markets 
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