Thursday, December 16, 2010
Financial Analyst: This Is The First Recession Since the End of the FIRST World War Where Government Help Isn't Trickling Down to the American People
Banking expert Christopher Whalen (hailed by Nouriel Roubini as one of the leading independent analysts of the U.S. banking system) told the American Enterprise Institute that this is the first recession going back at least to the end of the first World War where government assistance has not trickled down to Main Street and ordinary Americans.
Because the banks are keeping the money and not loaning it back out:
Buy why aren't the banks loaning the money back out?
As I've repeatedly explained, the government has given the big banks many trillions in bailouts and subsidies.
However, as I wrote in October 2008:
The banks are not "going to lend a nickel until the economy turns", and yet it is impossible for the economy to turn until the giant banks are broken up.
Many people (including me) have been warning that the banks will keep hoarding cash no matter how much money the feds give them.
Now, even the banks themselves are admitting it.
As the New York Times writes in an article 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 another Times article includes the following quote:“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.”
The banks are going to sit on the cash, not loan it out. So can everyone please stop saying that the bailouts were necessary to increase liquidity?
Moreover - as confirmed by the head of the Bank of England, the world's leading living monetary economist, economists Nouriel Roubini, James Galbraith, Robert Kuttner, financial analysts such as Chris Whalen and Marshall Auerbach, and many others - the big banks are insolvent, and have been insolvent since 2008 at the latest.
Remember, more and more "surprises" of fraudulent actions by the banks keep popping out. First it was falsely rating investments and financial instruments, then it was robosigning and fraudulent mortgage backed securities. Each time a new "surprise" pops out, the banks will incur many billions more in additional liabilities. The government refuses to prosecute any of the big fish for their biggest unlawful actions (see this and this), so the mess never gets cleaned out.
Instead, the big banks and the government know there is a lot more garbage coming down the pike (and so are terrified of leaks), and the banks hunker down and sock away any money the government gives to them to try to ride out future hurricanes which they know are coming. Why do they know they are coming? Because they know there are lots more skeletons in the closet, and that whistleblowers will eventually talk about them in deposition or through anonymous leaks.
So the big banks are hoarding all money they can beg from the government (or else crazily speculating with it trying to make their bonuses). But lending it to Main Street? No way, Jose (I know that borrowers are trying to repair their balance sheets and so demand for loans has declined. But that's only part of the story).
Moreover, as crazy as it sounds, the Federal Reserve is intentionally ensuring that the banks don't use the money we're giving them to lend to Main Street, under the guise of fighting inflation.
Of course, there has never been a recession before whether such a high percentage of the government's assistance went to foreign banks.
Finally, government policy is worsening the unemployment crisis.
So there is no mystery as to why assistance from the government isn't trickling down to Main Street.