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.

1 comment:

Anonymous said...

Iceland's bank dance...

Ratings agencies cut their views for Iceland Tuesday, after the country's president vetoed legislation that would have repaid the U.K. and Netherlands for bailing out depositors of a failed Icelandic bank, potentially imperiling rescue loans for the embattled country.

President Olafur Ragnar Grimsson on Tuesday cited the unpopularity of the legislation, which called for some $6 billion in repayment over 15 years. However, his decision may result in Iceland losing or seeing a delay in bailout money from the International Monetary Fund and Nordic countries.

Grimsson's decision "will seriously endanger Iceland's deal with the IMF and could hence further deepen the already grave economic and financial crisis in Iceland," Danske Bank analysts said in a research note. "We would expect to see negative ratings actions as a result of the president's decision."


Poor Obama... there's a tidal headed towards us... and he's propped up the banks but they may not withstand what is coming... imagine you are a general and you see your first line of defense crumble...