Friday, December 18, 2009

The Audacity of Asking Nicely

We helped them, why won't they help us?
After his meeting with top bank executives Monday, President Obama said his main message to them "was very simple: that America's banks received extraordinary assistance from American taxpayers to rebuild their industry -- and now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy."

Specifically, he called on them to lend more money to small and medium-size businesses.

Could banks start doing that? Absolutely. Will they? Not if the past is any indication.

Banks certainly have money to lend. Collectively they are sitting on nearly $1.1 trillion in excess reserves, defined as cash above the level that federal regulators require them to keep. It's the highest amount ever recorded in the 50 years the government has been keeping track, even if one accounts for inflation. By comparison, in the decade before the financial crisis blew up in September 2008, the nation's banks held an average of $1.7 billion in excess reserves.
When stripped to it's core, Obama's banking policy is to give the big banks who caused the financial crisis lots and lots of free government money, and ask them nicely to do the right thing with it.

You don't need a PHD to guess how that will turn out.

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