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Banker In Chief: Start Lending!

15 December 2009 No Comment

President Obama this week had some of the biggest bank execs to the White House to receive a whipping.  He’s frustrated that the banks aren’t lending.  Whenever I hear someone say, “The banks aren’t lending!” I am tempted to ask, really?  Not at all?  Or maybe a little?  If a little, how much should they be lending?  Saying that the banks aren’t lending is such a stupid statement in my opinion.

My biggest beef with this scenario is that the President (and other politicians) are mad that the banks aren’t lending.  But, do they have any idea how credit worthy many of the loan applicants are?  Of course not.  So, then, why the heck are they even speaking on the topic?

First of all, banks make money by lending money.  They want to lend money.  They don’t want to lend it to someone who won’t pay it back though.  This is called a loss.

Why Do I Comment On Political Matters?

A couple readers have asked me recently why I comment on political issues on a finance blog.  The reason is because unfortunately, politics and the economy are intertwined these days.  The biggest market mover is the government (The Fed).  The biggest force in the economy is the government.  Government is taking over much of the economy (autos, banks, health care).  You can’t comment on what is going on in the economy without commenting on government action mainly because well, that’s about all that is going on in the economy these days.

Most people that have a problem with it are people with an opposing opinion.  The thing that pisses me off is that these people don’t argue the facts with me, they just get mad at me for commenting.  Yes, I have an opinion on basically everything I write about.  Why else would you read my blog?  For opinion-less content, goto CNN.com or DrudgeReport.com.

Please Understand My Opinion

The basis of much of my political opinion and commentary is not from a Republican v. Democrat perspective.  I truly look at both parties as very much one in the same.  I have a problem with both of them.  Since the Democrats are in power, I basically have more of a problem with them.  If McCain were President and the Republicans were in power and things were going the same, you would be hearing the same criticism directed at them.

So, if you understand that, you Obama lovers won’t have a problem with my statements unless of course you hate capitalism and believe in government intervention across the board.  If that’s the case, then yeah, you probably shouldn’t read my blog.  I believe in the free markets (not George W Bush free markets).  I think that the power of the people making millions of small decisions and transactions independently makes up an amazing system that results in prosperity and growth.  I don’t think that a group of “smart” individuals in Washington can decide the direction for this economy.  Therefore, I don’t think that a group of smart people at the White House can tell the financial sector what level of lending should be occurring.  Unless of course, we start sending our loan applications to 1600 Pennsylvania Ave.

Lastly, I want intelligent debate on the topics that I comment about.  If you have a differing opinion, make your case and back it up.  I welcome it!!

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  • Josh said:

    They are counting on the banks to pump liquidity into the market, they could care less if the banks lose money or not. The government is terrified of deflation and are doing everything in their power to cause inflation. The US debt is larger than the asset base, they cannot afford to write off any more debt or they will go bankrupt themselves. The only recourse is to inflate the value of your asset base to off set the debt. Which is why when you read the report this morning that says the U.S. producer price index surged 1.8% in November and even excluding food and fuel it rose 0.5% far more than expected, the Fed didn't even blink. Interest rates are staying at pretty much zero and banks are being pressured to pump ever more cash into the system.

    Sadly this will hurt the people trying to do the right thing by saving money and getting out of debt, while the borrow and spend crowd is sitting pretty.

    Although there are already signs that this isn't going to work for much longer. There is some concern in the morning report of excess capacity production which will have deflationary forces and the Treasury Department reported that net foreign purchase of U.S. long-term securities slowed to $20.7 billion in October from $40.7 billion in the previous month. Eventually, sooner rather than later, they will be forced to raise rates, probably sharply and the whip lash caused in the economy will be interesting.