One of the reasons most often cited is an unwillingness to lend on the part of banks that face higher capital constraints and have raised their credit requirements. The changes came in the wake of the subprime mortgage fiasco when millions of homeowners with poor credit and little or no cash received mortgages for homes they could not afford.
Bove has been a frequent critic of the new rules, saying they are cutting off capital to an economy teetering on recession.
“It is a classic example of how badly the people who are supposed to understand banking do not have a clue as to how it works,” he said. “They love to pass laws and new regulations but they do not care nor do they understand what these regulations will do. Then they get frustrated when the simplistic monetary theories they put in place do not work.”
But the plan is generating some support.
“This is the best stimulus out there because it doesn’t increase the deficit, it accomplishes monetary policy, and it reduces defaults in housing,” Christopher J. Mayer, an economist at the Columbia Business School, told the Times. “So I think this is low-hanging fruit.”
Bove, though, said a simple relaxing of capital requirements for banks and allowing rates to drift higher would accomplish the same thing at no cost.
“The biggest failure is that these people are still working on consumption rather than production programs,” he said. “Until they figure out that more production is what is required we will continue to take money out of one pocket and put it into another and assume that we have accomplished something.”
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