Friday, September 4, 2009
That disproves the argument by the Bush and Obama administrations that government support for the giant banks will help ease the credit crisis for the average American consumer. As some of us have been writing for some time, the banks will hoard money until the economy stabilizes - in other words, until consumers are no longer desperate for credit.
They will also hoard money unless and until they can pretend - with a straight face - that they are no longer insolvent.
Remember these quotes from the New York Times article from last year entitled "Banks Are Likely to Hold Tight to Bailout Money":
"Will lenders deploy their new-found capital quickly, as the Treasury hopes, and unlock the flow of credit through the economy? Or will they hoard the money to protect themselves?
John A. Thain, the chief executive of Merrill Lynch, said on Thursday that banks were unlikely to act swiftly. Executives at other banks privately expressed a similar view.
'We will have the opportunity to redeploy that,' Mr. Thain said of the new capital on a telephone call with analysts. 'But at least for the next quarter, it’s just going to be a cushion.'
Lenders have been pulling back on credit lines for businesses, mortgages, home equity loans and credit card offers, and analysts said that trend was unlikely to be reversed by the government’s money.
Roger Freeman, an analyst at Barclays Capital, which acquired parts of the now-bankrupt Lehman Brothers last month [said] 'My expectation is it’s quarters off, not months off, before you see that capital being put to work.' ”
And this from another Times article:
“It doesn’t matter how much Hank Paulson gives us,” said an influential senior official at a big bank that received money from the government, “no one is going to lend a nickel until the economy turns.” The official added: “Who are we going to lend money to?” before repeating an old saw about banking: “Only people who don’t need it.”
Repeat after me ... The bailouts had nothing to do with helping the real economy. They were just a way to hide the insolvency of the big banks a little longer, and to lend a hand to the big boys in the oligarchy. But don't listen to me. Listen to experts on oligarchies (and see this).