Obama vs. Wall Street
As usual, Ed Yardeni is exactly on point:
1) While Washington wants them to lend more, the bank examiners sent by Washington’s regulators are all over them to improve their credit quality and to tighten their lending standards.
2) They also observe that most of the big banks were forced to take TARP money they didn’t need or want last October 2008.
3) The bankers can’t deny that they contributed to the financial mess, but so did the government by pushing them to make subprime loans through the Community Reinvestment Act and by encouraging Fannie and Freddie to purchase these loans. In his recent book titled “The Housing Boom and Bust,” Thomas Sowell carefully documents this sordid tale of corruption in Washington and on Wall Street.
4) One of the main reasons that the banks are not lending is that the Federal Reserve is pegging the federal funds rate at zero. As a result, investors have scrambled to buy corporate bonds at a record pace. So corporations with access to the bond market have been able to raise lots of money. Indeed, many have raised more than they need, and they used some of the proceeds to pay down their bank lines of credit. Less fortunate borrowers are stuck with trying to get loans from their bankers. The problem is that many of them have become less credit worthy because the economy remains weak. The banks already have lots of problem loans and don’t want to make more such loans, especially with bank examiners on their backs.