Thursday, October 16, 2008
Bailouts Have Failed: Banks Are Still Hoarding Cash
Despite spending trillions of dollars on the bailout plans, banks are still hoarding cash.
Why?
Because:
- They have huge derivatives liability (especially on credit default swaps), and they are trying to build up enough of a nest egg to be able to pay off their derivatives debts
- They're stashing cash to try to ride out the financial crisis in general
- Some are even using the money to buy up rivals
The feds handed out all of the dough without keeping any control whatsoever to make sure the banks used the money to lend out to Main Street.
The feds' hope that the banks would use the money to lend out to Main Street is about as smart as handing over your wallet to a robber based upon the hope that he'll pay your bills with it.
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