Tuesday, January 5, 2010
Obama's Bank Dance
"Over the weekend, President Barak Obama went on the offensive against Wall Street for not lending more to Main Street. On CBS's '60 minutes,' the president declared, 'I did not run for office to be helping out a bunch of fat cat bankers on Wall Street.' ... Wall Street fat cats are always a convenient political target, but bankers are responding to the incentives generated by the economic policies of the Treasury and the [Fed]. First and foremost is the Fed's policy of near-zero interest rates. ... In today's troubled times, only the best credits will be bankable. Meanwhile, financial institutions are happy to service their new, best customer: the US Treasury. That play on the yield curve is open to banks of all sizes. The Fed's policy makes sense if the goal is restoring bank profitability by generating cash flow. It is a terrible policy is the goal is fueling small business, the engine of economic growth and job creation. Large, nonfinancial corporations have access to banks. ... While the public is upset with $10 million to $20 million banker bonuses, public policy should focus on what is generating them. ... Sending scare resources to major banks in the form of funds from the ... (TARP), ultra-low interest rates, and the Fed's targeted credit schemes has diverted needed capital from real, productive activity. Now the politicians feel the public's anger and are complaining about the lack of lending and the size of executive compensation", my emphasis, Gerald O'Driscoll (GO) at the WSJ, 17 December 2009, link: http://online.wsj.com/article/SB10001424052748704398304574597910616856696.html.
I agree with GO. GO is with Cato and once worked for the Fed and Citigroup. I consider GO an Austrian economist. GO wrote Economics as a Coordination Problem, 1977. A good read.