Community | July 17, 2011 | 36 comments

Why Banks Aren't Lending: The Systemic Manipulations Continue

source: http://www.webofdebt.com/articles/why_banks.php

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Schnookums
Why aren’t banks lending to local businesses? The Fed’s decision to pay interest on $1.6 trillion in “excess” reserves is a chief suspect.

Where did all the jobs go? Small and medium-sized businesses are the major source of new job creation, and they are not hiring. Startup businesses, which contribute a fifth of the nation’s new jobs, often can’t even get off the ground. Why?

In a June 30 article in the Wall Street Journal titled “Smaller Businesses Seeking Loans Still Come Up Empty,” Emily Maltby reported that business owners rank access to capital as the most important issue facing them today; and only 17% of smaller businesses said they were able to land needed bank financing. Businesses have to pay for workers and materials before they can get paid for the products they produce, and for that they need bank credit; but they are reporting that their credit lines are being cut. They are being pushed instead into credit card accounts that average 16 percent interest, more than double the rate of the average business loan. It is one of many changes in banking trends that have been very lucrative for Wall Street banks but are killing local businesses.

Why banks aren’t lending is a matter of debate, but the Fed’s decision to pay interest on bank reserves is high on the list of suspects. Bruce Bartlett, writing in the Fiscal Times in July 2010, observed:


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Economists are divided on why banks are not lending, but increasingly are focusing on a Fed policy of paying interest on reserves — a policy that began, interestingly enough, on October 9, 2008, at almost exactly the moment when the financial crisis became acute. . .

Historically, the Fed paid banks nothing on required reserves. This was like a tax equivalent to the interest rate banks could have earned if they had been allowed to lend such funds. But in 2006, the Fed requested permission to pay interest on reserves because it believes that it would help control the money supply should inflation reappear.

. . . [M]any economists believe that the Fed has unwittingly encouraged banks to sit on their cash and not lend it by paying interest on reserves.

**

At one time, banks collected deposits from their own customers and stored them for their own liquidity needs, using them to back loans and clear outgoing checks. But today banks typically borrow (or “buy”) liquidity, either from other banks, from the money market, or from the commercial paper market. The Fed’s payment of interest on reserves competes with all of these markets for ready-access short-term funds, creating a shortage of the liquidity that banks need to make loans.

By inhibiting interbank lending, the Fed appears to be creating a silent “liquidity squeeze” -- the same sort of thing that brought on the banking crisis of September 2008. According to Jeff Hummel, associate professor of economics at San Jose State University, it could happen again. He warns that paying interest on reserves “may eventually rank with the Fed's doubling of reserve requirements in the 1930s and bringing on the recession of 1937 within the midst of the Great Depression.”

The Travesty of the $1.6 Trillion in “Excess Reserves”......

Continue Reading at:
http://www.webofdebt.com/articles/why_banks.php
  1. groups:
    Community,   Greatest Depression,   Business News & Analysis
  2. tags:
    Banks,  Fraud,  Debt,  Theft
  3.     
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36 comments // Why Banks Aren't Lending: The Systemic Manipulations Continue

  • JohnA
    • 0
      JohnA  

    • Banks are in the business of making loans, it's what they do. That's how they make their money. If you have a good credit rating and assets, you can get a loan. Banks make nothing by sitting on money.

    • 10 months ago
  • Schnookums
  • JohnA
  • RevKen
    • +1
      RevKen  

    • The Banking crisis was a perfect excuse for The Trilateral Commission to further their goal of forming one world bank. Our most powerful politicians, from both parties, are in The Trilateral Commission so there is no stopping them.

      They took the smaller banks that "failed" and gave TARP money to the large banks to swallow them up. We went from a few large banks and many small banks to very few small banks and a few MEGA BANKS.

      What is stopping banks from lending money is the loss of competition in the banking industry. Banks no longer need to loan money to earn money. They make their money by charging fees now.

    • 10 months ago
  • asocial
  • figgdimension
  • VoyagerFilms
    • +2
      VoyagerFilms  

    • More of the same greed mentality of the ultra wealthy at the expense of the ultra many. Right now, more than anything it's the banks attempting to manipulate the economy to make President Obama look bad, like he's failed and unable to carry out his promises. This is nothing less than banks screwing the American people!

    • 10 months ago
  • SandyBerman
    • SandyBerman  
    • This comment was removed as a violation of community guidelines.
  • Vic_Romano
  • SandyBerman
  • Vic_Romano
    • +1
      Vic_Romano  
    • SandyBerman:

      By securitizing so much risky debt under the color of some sort of federal guarantee, they were the ones who had a major role in ratcheting up the whole housing bubble starting in 2004, and set the whole meltdown in motion when both entities went into receivership. They drank the same "greed is good" kool aid that Wall Street was drinking. Instead of being a whistleblower in this whole scam, they were right there with the other Wall Street pigs.

    • 10 months ago
  • SandyBerman
  • Vic_Romano
    • +2
      Vic_Romano  
    • SandyBerman:

      No, it wasn't. That's the fucked up part about it. Both Fannie and Freddie were cornerstones in getting ordinary working families good housing. But they totally fell apart under Bush's watch.

      Forensically speaking, though, I'd say that the repeal of the Glass-Steagall Act was the greatest culprit in this whole mess. That's what let all those big investment banks run amok with matters traditionally left in the hands of ordinary lending institutions.

    • 10 months ago
  • SandyBerman
  • Fishinflick
    • 0
      Fishinflick  
    • SandyBerman:

      Obama picked Geithner, no reform to this day... Clinton aided Bush Sr. finishing off NAFTA, and the repeal of the Glass-Steagall Act. It's a system pal, a 2-headed snake, a sad joke, a dog & pony show, a farce. A "democratic" political solution with Wall Street Dems and Golf Link Repugs, REALLY!?!!?

    • 10 months ago
  • Richard_Wyatt
    • +1
      Richard_Wyatt  

    • They are waiting for 2013 and their great white hope. That would be my first gut instinct. They ain't gonna do anything that makes Obama look good period.

    • 10 months ago
  • Warren_Merrill
  • telcod
    • +1
      telcod  

    • As Lee Camp reflected recently, "Unfettered Capitalism rocks out with it's cock out." Sums it up pretty well. The fix is in. Ain't gonna change even if progressives had 25 votes each and liberals and conservative (reactionaries) had 1/10 vote each. Our system makes the Fukashima reactors look like Swiss watches and Disneyland can now be found under non-fiction at your local library.

    • 10 months ago
  • nobsartist
    • +2
      nobsartist  

    • The Fed is the problem. I predict that the Feds days are numbered and so are our days of being a great nation. Thank your representatives for selling out America to save the Fed.

    • 10 months ago
  • SandyBerman
    • SandyBerman  
    • This comment was removed as a violation of community guidelines.
  • telcod
    • 0
      telcod  
    • SandyBerman:

      Sorry brother and fellow former scout, we ain't gonna require the banks to do anything. They press the flesh with cash filled hands and we and listen to the wind suck. Listen to Lee Camp and Lewis Black on YouTube.

    • 10 months ago
  • squarethecircle
  • percipi224
    • +1
      percipi224  

    • Good post, I read last night in Huffington that the Consumer Credit act only protected personal credit cards from the usury of the banks, business cards are fair game (there is an oxymoron!) The bond market is about to crash due to bundling and selling just like the mortgages, commercial realty is crashing and our congress is trying to figure out a way to blame it on the deficit, Obama, little green men?

    • 10 months ago
  • extracrazykiwi2008
  • telcod
    • +1
      telcod  
    • extracrazykiwi2008:

      Don't know. I had one of my comments killed, cause I quoted a poem which I had directed at Orin Hatch. Go figure. Course it did imply that he trip and fall down his own rectum and incur a broken vertebra. Seems to me we need a European vision of violence that is based more on actions rather than the BS we think is inappropriate or obscene. Personally, I find the individual killer less repulsive than those that sign away the lives of thousands with a pen. Also found the grunt more noble than the pilot with a stick and a button between his legs, like McCain.

    • 10 months ago
  • cmc101
  • bailey78
  • DudleyDooleft
    • +2
      DudleyDooleft  

    • And, Elizabeth Warren is sent back to be a professor! The beat goes on.

      Edit: Just heard one of the talking heads, Chuck Todd, put out the possibility that the dems want Warren available to run for the senate against Scott Brown in Mass. Sounds good to me, we need more dems with a spine.

    • 10 months ago
  • COMMONSENSEFORCOMMONGOOD_COM
  • COMMONSENSEFORCOMMONGOOD_COM
    • +2
      COMMONSENSEFORCOMMONGOOD_COM  

    • Well isn't that just another example of government facilitating the further rape and transferring of the public's wealth? Isn't that just one more argument for ending the Federal Reserve? How do we get a candidate who will recognize and call out the thieves of this nation's prosperity and posterity?

    • 10 months ago
  • squarethecircle
  • KB723
  • Schnookums
  • KB723
  • Schnookums
  • cmc101
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