Wednesday, January 06, 2010

Banks Not Lending

In case any of you are still wondering why US banks are not lending despite President Obama's public pressure on them to do so, the simple answer is the Economic Team Obama has been negating Obama's intention with concrete action:

The Federal Reserve – for the first time in history – is paying the banks interest on excess reserves. They can earn 0.25% risk free on nearly $1 trillion. This is more than the banks can earn on 1, 3 or 6 month T-Bills right now. This helps prop up the financial sector while keeping long-run inflation expectations low, and hence, it is deflationary.

May I humbly suggest Obama quiz Summers/Geithner/Bernanke before he badgers the bankers again? And that's why Main Street which needs bank credit to do business is getting the shaft while Wall Street continues to get freebies courtesy of Team Obama on behalf of taxpayers.

No comments: