Obama Asks US Banks to Lend

I know the parallels are not exact but this story is a reminder that our current banking situation—involving banks that don’t want to lend, governments exhorting them to do so and banks focused heavily on attempting to escape government control—is not exactly unique. Some highlights:

Bank executives say they itch to make profitable loans, as many as possible, but are struggling to find qualified borrowers. They also say that the administration is asking for increased lending even as it pursues financial reforms that will limit the ability of banks to make loans.

And, of course,

“America’s banks received extraordinary assistance from American taxpayers to rebuild their industry,” the president said after the meeting. “And now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.

And this:

This is the second time the president has convened bank executives to urge increased lending. The first meeting, in March, did little to slow the slide. The president said Monday that he continues to get “too many letters from small businesses who explain that they are creditworthy and banks that they’ve had a long-term relationship with are still having problems giving them loans.” But the White House on Monday defended the value of the rhetoric.

“I think that the bully pulpit can be a powerful thing,” said press secretary Robert Gibbs.

We’ll see whether asking nicely a second time works well for them.

14 replies on “Obama Asks US Banks to Lend”

The U.S. banks are making very good profits by borrowing at zero interest rate from the Fed. and buying Treasury bonds. Why take any risk by lending to the private sector? Paradoxically the banks will not comply with the Obama exhortation until Bernanke raise interest rates: at that point they will require greater returns by making riskier loans to the private sector.

@ Karl

“This is the second time the president has convened bank executives to urge increased lending. The first meeting, in March, did little to slow the slide.”

“Citigroup chief executive Vikram Pandit missed the White House meeting to rally investor support.”

Was John Stumpf of Wells Fargo there?

https://www.wellsfargo.com/about/corporate/executive_officers/stumpf

Was Lloyd Blankfein of Goldman’s there?

http://www2.goldmansachs.com/our-firm/about-us/leadership/board-of-directors.html

Was John Mack of Morgan Stanley there?

http://www.morganstanley.com/company/governance/board.html

Was Dick Parsons of Citgroup there?

http://www.citibank.com/citi/press/2009/090121c.htm

“The guest list for the meeting included the top executives of 12 of the nation’s largest banks, but there were three late scratches. Goldman Sachs’s Lloyd C. Blankfein, John Mack of Morgan Stanley and Citigroup’s Richard Parsons participated in the meeting by telephone because the flight all three had planned to take from New York to Washington was delayed by fog.”

Better things to do apparently.
Maybe they just couldn’t be bothered.

They have taken what they want.

They will leave the Commander in Print to do the job they paid him to do.

Back to Ireland.

I didn’t here anything about a late night meeting of bank executives with Brian Cowen and Brian Lenihan lately. The last one apparently ended at 4am and €450bn of BONDHOLDER debts assigned to the Citizens of this Republic (if that is what it is).

There are times Karl, when macroeconomics simply won’t cut the muster.

Obama is trying to convince everyone that he is trying!
The banks know what to do and are doing it.
But lending and credit is contracting as it has to! All that malinvestment is being wound back and they can do zip to reverse it! What fools to try to convince the “public” that there is anything they can do. They squander capital as they are encouraged to give credit to cronies who have access: Goldman AIG etc.

This farce can continue for a long time: when FDR was sick of it he invented publicly owned institutions to lend to ordinary people. They have been milked of capital by now. This crisis did not begin a few years ago. It started in 1999! Most of the capital has been wasted!
Wasted. It really is very funny to watch economists try to help the president. All the capital is gone into paper values and the smart folks took it out long ago.

Karl thanks for posting this. It shows that there is nothing to be done in cpaitalistic terms. All that lies ahead now is centralism, fascism and more or less socialism! The effects of the destruction of all this value are still being felt and appreciated. But taking on more borrowing is not the correct thing to do when the interest rate has to be added to the deflation rate! Way to burn more capital. You know what capital is? Accumulated profits and wages savings put together over decades in the belief that a pension could be funded!!!!

So long suckers! No pension money and as stock values decline, once the turbo trading is finished, will anyone be able to figure it out? Why not, it is obvious! No one who has invested in a Ponzi scheme ever thought that that was what it was, obviously. They trusted the big folks who were “making”
money. Well the whole system was a Ponzi scheme!

Anyone want to buy shares? Anyone want a cheap loan? Japan has the cheapest loans on the planet: for twenty years! What happened there? Well it has been happening in the USA for 10 years now. And in Ireland, if TPTB knew what was what, they would have applied all this corrective fiscal policy in 2001.

In Kondratieff winter people huddle together caught out by the snow and ice and they slowly die as they realize that they have been fooled out of their money by the entire system they were a part of.

This is not capitalism this is fractional reserve lending, complete with shadow banking! Don’t worry though, it will come around again, in forty or fifty years. There will be no need for pressure to lend then……

Ask yourselves where did the value go to? Who sold out early? Are they wise or did they perpetrate the swindle? Are the victims to blame for their stupidity? What of the children who had no part to play?

Is this what we want for a financial system? Is it just a lottery? Ask von Mises!

Let me get this straight (financial economists, help me fix my faulty logic!):

1) The Fed lends to the banks at zero interest rates.

2) The banks use this money to buy treasury bonds at slightly higher interest rates.

3) The Treasury uses this money to recapitalise the banks, and the circle closes.

4) The net effect of all this is:

a) quantitative easing (burn your dollars for heat value if you have a wood stove next winter!)

b) crowding out of private sector activity in favour of the Unholy Alliance between Fed, Treasury and Banks (Federally-backed Ponzi scheme)

c) a transfer from the US taxpayer to the banks, their execs and their stakeholders of i) the interest differential between the bonds and the Fed loans ii) the difference in value of the shares between what they would be worth in the absence of a bailout and what the TARP-inflated value is (blind robbery of the taxpayer, or wholesale fraud of the T-bond holder – see (a)!)

I’m sure others have seen the symmetry that arises here. Governments and regulators failed to rein in the irrational exuberance of the banking and financial sectors; the inevitable crash occurs; and now governments and regulators want the banking sector to behave with irrational exuberance in an enviroment of rational gloom.

I’m also a little surprised that there has been no post here on the other big non-story of the week – the Government’s position on pay in the semi-states.

The extent to which semi-state workers have been insulated from the impact of events in the real economy is certainly anomalous, but this is only part of the story.

As Governor Honohan has hinted, it looks like the bank’s haircut on the value of the loans transferred to NAMA will be more severe that the widely-touted 30%. This automatically increases the extent of the recap required. The ability of the Government to raise esternal funds for this purpose is constrained.

But the Government is sitting on up to €15 billion of equity in the semi-states. Restructuring these businesses and releasing the equity would reduce the State’s net indebtedness at a stroke. In most developed economies these businesses are owned and operated by the private sector subject to regulation. On top of the Budget, it would give a very clear signal to the international markets about the seriousness of the Government’s intent.

The extent of the bank recap required will soon force the Government to choose between maintaining the covered banks in broadly Irish management and control and retaining its majority ownership of all, or most of, the semi-states.

In addition, restructuring and privatising the ESB and BGE – the most profitable semi-states – would result in a reduction in final electricity and gas prices.

It looks like a “win-win” outcome to me.

@Karl Whelan
It is ironic that the ministerial fib that NAMA would generate extra lending to business was blown out of the water by the banks themselves. One year and three months after the bank guarantee we have still not fixed the banks and through NAMA we will pour €65Bn down a hole as deeply black as the minister’s hair. His hair is so black in fact that physicists compare it to a black hole. They say that not even light can escape from it – neither will the tens of billions he is putting into NAMA.

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