Tuesday, October 28, 2008

Government Bemused by Lack of Lending

I saw the Tennessee Titans play for the first time last night. They moved to a record of 7-0 after beating the Indianapolis Colts. The Titans have an amazing defense, and a solid offense. They look pretty good to me. The Colts lost back to back games for the first time in a while, and they now play my New England Patriots next Sunday night. I do not think the Colts have ever lost 3 games in a row with Peyton Manning, so I guess that is a bad omen!

Government Bemused by Lack of Lending
It seems the White House and others in the government are puzzled by the fact that all the cash that has been handed out to the banks so far is still sitting there. What happened to all that credit and lending we were promised? What about the golden new era of bank lending the bailouts were supposed to provide? We were assured that a simple lack of liquidity was the culprit, and a money tsunami was just the fix! What happened? Here is the headline form Yahoo Finance (no not from the comedy site "The Onion":
White House to banks: Start lending now
Tuesday October 28, 5:44 pm ET
By Jennifer Loven, AP White House Correspondent
White House tells banks getting federal aid to quit hoarding money and start lending it
"Hoping to thaw the credit freeze that has chilled the economy, the Bush administration sent banks an unmistakable message to put aside fears and open up loan windows for cash-starved businesses and consumers who have pulled back on spending.
"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said. While there are limits to Washington's power to affect banks' behavior, the White House decided it was time to use its bully pulpit.
"They (regulators) will be watching very closely, and they're working with the banks," Perino said."

Soon this administration will be gone and while I am sure the next one coming in will be no better on things economic, at least we might get statements that make sense! I mean reread this one and see if you can spot the problem:
"the Bush administration sent banks an unmistakable message to put aside fears and open up loan windows for cash-starved businesses and consumers who have pulled back on spending."

So which is it? Are people cash starved and in dire need of credit, or are they pulling back on their spending? I guess the idea is to "take a loan, it is patriotic!" or something.

What is escaping the powers that be and the smart guys running the Treasury and the FED is that we need a clearly defined and tangible bubble to put any new credit to work on. Houses are dead money for a while. The stock market is too jumpy. Commodities are busted. Bonds seem too weak. What is needed is a clear national goal of a new bubble. Maybe antique cars will do? That way GM and Ford may get a boost as well! Beanie babies? Cabbage Patch Kids? What will do the trick?

I have repeated my question about all of this bailout cash, so i guess one more time will do:
To whom and for what will all this money be lent out to?

I still hear crickets.

Opposing Headlines
While finding totally opposing statements in the text of an article is great fun, sometimes you can do it with just the headlines. Consider these two headlines on the main Yahoo Finance page:
"Dow jumps nearly 900 points as bargain hunters grab stocks in anticipation of a Fed rate cut"
"Treasury official says rescue operation will generate unprecedented borrowing needs"

So we have a big rate cut in the works for tomorrow, but the US government will need to borrow massive amounts of money going forward. See the issue? I thought that when you need to borrow big money, the rate on that stuff goes up, not down. So the FED is on their way to a FED rate of 0% (hello Japan!) while at the same time getting ready to sell treasuries by the cargo load. I am so sure that is going to go well and work out.

Maybe the banks can lend the US government money right back to them! Now there is an idea that Paulson needs to look at. Can the US take taxpayer money and debt, loan it to the banks, and have the banks loan it to the US in a closed loop? Maybe I should get a Nobel Prize with this kind of powerful insight.

Market Rally Banana Republic Style
Look, one cannot deny that solid, efficient markets just do not gyrate to the tune of 10% and and down on a daily basis. That kind of volatility means only bad things. Things like market participants have zero idea what is going on. Things like government intervention makes panic moves happen almost daily. Things like no underlying fundamentals to support a move up or down. Those kind of things.

A rate cut tomorrow is viewed as a positive, but the FED may have only 1 or at most 2 moves left after tomorrow. All the rate cuts to this point have done nothing, so maybe this one does the trick? Whatever. Almost all the action has been happening in the last 30 minutes of the day, and that means something. What I do not know, but I imagine it will be interesting to find out.

Good Financial Poem
James over at Bubblemeter had a great original poem up yesterday. Check it out:
Real estate was
The way to get rich.
Just buy a home
And give it a flip.

If you bought more house
Than you can afford,
Helicopter Ben
Will dump cash your door.

He's Helicopter, Helicopter,
Helicopter Ben,
The money-throwing man
Who works at the Fed.

Money from the clouds,
Money from the sky,
Manna from heaven,
Thank that helicopter guy.

Full post:

Have a good night.


norcalboon said...

Dead cat bounce fun and games:


Anonymous said...


Down half a point.


PS: GG Bernanke