Need a mortgage? An auto loan? If you are a business or consumer, it’s almost as hard to get a
loan this week as it was last.
Sure, there are some positive signs that the credit market is opening up a bit: Libor rates, the price at which banks lend to each other, have crept down in recent days, greasing the wheels of capitalism, or at least what’s left of it. Some banks, like JPMorgan Chase and Citigroup, actually made loans to banks in Europe on Friday. These are all important steps on the way to a recovery.
But make no mistake, the banks are doing the opposite of what Henry M. Paulson Jr., the Treasury secretary, sought when he virtually demanded that they accept the taxpayers’ money: They are hoarding it. It’s a bit like the government’s sending out tax rebate checks and the consumers’ not immediately running out and spending them.
“Our purpose is to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital,” Mr. Paulson said in a statement Monday. “And we expect them to do so, as increased confidence will lead to increased lending. This increased lending will benefit the U.S. economy and the American people.”
Of course, with a $250 billion injection into America’s biggest banks — not all of which were troubled — Mr. Paulson has a political sales job to do. And no requirements to lend were attached to the money. (Some banks may use the money to buy others.)
But Mr. Paulson is making a big assumption about confidence, because until the real economy recovers — which could take more than a year — lending to Main Street is unlikely to return rapidly to normal levels.
“It doesn’t matter how much Hank Paulson gives us,” said an influential senior official at a big bank that received money from the government, “no one is going to lend a nickel until the economy turns.” The official added: “Who are we going to lend money to?” before repeating an old saw about banking: “Only people who don’t need it.”
Indeed, if there’s a reason the stock market went up Monday, it was because Fed chairman Ben Bernanke told Congress he was in favor of a second economic stimulus plan, a tacit acknowledgment that recent efforts to repair the financial system won’t be enough to dig the economy out of its rut.
Think about it: troubled companies are still troubled companies. And while banks often stupidly throw money at questionable companies in good times, they shut off the spigot in bad times.
(See Andrew Ross Sorkin's latest appearance on CNBC in the video)