In a speech to Congress on February 24, 2010, "The Monetary Report To Congress", Mr. Bernanke, amongst many other items, stressed the fact that the Federal Reserve is going to 'lean on' banks to make loans to 'credit worthy borrowers'. This happens to be something that the banks just haven't been doing----irrespective of credit status. They also aren't clearing their balance sheets of bad loans, mostly residential bad loans, with all the money they have been given---all with no strings attached. Further, they are supposed to be readying themselves for the gigantic monetary problem of 4 million homes that will likely enter foreclosure this year.
I suppose the fact that they do neither makes sense, in a twisted way. Why not just keep the money? Invest the money, make money, and give back the stimulus money received from the government to the government. The banks have more money and are happy, and the government is happy because it has its money back. The banks and the government are all happy. Let's party.
Let's join the party. If you were a 'small' bank who had received government money, no strings attached, would you really want to lend money to a bunch of already proven to be largely unreliable people and businesses who need money, but don't have any and are therefore not 'credit worthy'? Of course not.
We have approximately 9531 banks with 100 or more million dollars in assets. The number of banks with less than 100 million in assets is approximately 20,000. As far as assets go, the biggest 22 have more than 20 billion, the average being 2 billion. The total assets of all 9531 banks, average 2 billion in assets equals 1,906,200,0000 or approximately 1.9 trillion in total assets leaving out the 20,000 'tiny' banks. Think all these banks could scrape up a few bucks to loan to the 'not credit worthy'? Not on your life.
Now back to 'credit worthy'. I'm sure I'm hopelessly naïve, but why is the 'credit worthy' test applied to us hoi polloi, and not to another group of government funds recipients, such as really big banks, like Goldman Sachs, General Motors (the biggest loser), Chrysler, and lest I forget, AIG (probably a bigger loser than General Motors. Too close to call). They all got money, big money, because they needed it. They also were and are the biggest examples of not 'credit worthy' you could find anywhere. Were money not given them, they'd all be bankrupt. And they're all still taking money, except for Goldman Sachs. That's the position many of us are in, have been in, and will be in. Broke, needing help and 'not credit worthy'.
So here we are. We'll maybe get money if we can prove we don't need it. And definitely not, if we aren't 'credit worthy'. The business people, who don't need money, have businesses that are successfully functioning, won't borrow and won't be hiring new people. (Ford Motors is a good example).
The total bailout spending is 23.4 trillion and rising.
Not to worry. President Obama to the rescue. We are going to have a 33 Billion dollar fund, given to businesses, in the form of tax credits. Tax credits to businesses that will never use the tax credits. That this is so turns on the fact that these 'tax' credits' are only given to businesses based upon 'new hires'. Companies that are functioning well don't need or want 'new hires'. They are already functioning well at the size and scope that they wish in this economy. If they wanted 'new hires', they would have already hired new people, long before now. Businesses that are either suffering or bankrupt obviously don't need or want 'new hires'. They are busy cutting their work force, certainly not adding to their work force. Hence they too will not use these 'tax credits'. Nobody will use or be stimulated by 'tax credits'.
Who in the world is kidding whom? 33 billion. That's 0.14% of the total bailout money. And 0.14% that will never be used and will stimulate nothing. That this pitifully small amount of money, as promoted by the administration, will stimulate the 'Peoples Economy,' 'Main Street', is a cruel joke. Wall Street is booming and Main Street is dying.
Remedies that are offered to us, 'Main Street,' are both unusable and pitifully small. Wall Street, on the other hand, has been given large amounts of money, in usable ways, and is flourishing. Bonuses at both big banks and large brokerage houses are setting all time records. And yet, here we sit, hat in hand, completely ignored, both broke and unemployed.
So, Mr. Bernanke and President Obama, put the money where it should be, in the hands of people who build businesses, hire people, and build the economy. And in amounts that makes fiscal sense, far, far larger than 33 Billion and in a form that can actually be used.
And, please, don't keep treating us as idiots.
Follow Ronald Ricker on Twitter: www.twitter.com/RonaldRickerMD