Christina Romer Gets it Wrong: "We Need Banks to Lend Like Crazy"
Romer refused to get into the issue of how the Obama administration shoved Senate Finance Committee Chairman Christopher Dodd to "reluctantly remove" a provision that would disallow bonuses from firms that received federal relief -- and didn't want to get into how on one day Summers defended the bonuses when the next day Obama said they stank.
But what really showed Christina Romer's course -- and that of the administration at the moment -- was her line that:
We need them [meaning banks and financial institutions] to lend like crazy. . .
WRONG. This kind of statement is a manifestation of the fantasy that the U.S. economy can bounce back to the kind of turbo-charged, quick growth consumption economy we once had -- that depends upon consumers devouring goods far beyond their ability to pay for them and depends equally on financial institutions making decisions that are out of line with dependable returns.
"Lending like crazy" is exactly what helped trigger the global financial crisis -- and reflating those trends would be a major mistake if that is what the Obama administration is pushing.
Obama admitted a misstep in referencing the "Special Olympics" in his Jay Leno chatter about his poor bowling performance. Christina Romer's encouragement of "lending like crazy" is a far worse reference that should be immediately addressed and withdrawn by Romer and the White House economic team.
-- Steve Clemons is publisher of the popular political blog, The Washington Note
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So we the taxpayers *GIVE* them money so that they can *LEND* it back to us at ridiculous rates.
Makes perfect sense.
This is so blatantly wrong, yet they insist that this will help the taxpayer.
What an insult to the intelligence of a FIRST GRADER!
What an egregious scam!
Not really true. What about all those people who got laid off out of no fault of their own? The domino effects of the financial crisis are humongous, and affect lots of innocent bystanders. I completely agree with Elodora's point, and would say, the financial alchemists on Wall Street chopped and diced these dubious loans to sell them as securities and made fortunes, completely ignoring the risks their actions held. They should be investigated for negligence & be held financially accountable if not criminally.
On another note, Ms. Romer said something even more alarming today, something about investors in the new Treasury scheme will be doing us a favor by participating. Yeah, doing us taxpayers a favor, by using mostly OUR money to buy up toxic assets, so that if the assets are undervalued, they reap big gains; but if not, they have very little to lose (we do, coz we are on the hook for most of the seed money). The whole scheme is a subsidy for people who still have money to play, so be honest and call it such. I can even take it as necessary evil, coz it's in the name of saving the economy. But to call it a FAVOR??? That's just such a bold faced lie that I can not and will not take. She should be ashamed of saying that, and for taking us all for fools! I'd also like it very much, should she be replaced by someone with more decency &
Mr. Clemons, that is a gross oversimplification.
"Lending like crazy" is not the same as "crazy lending."
Right now we still need a lot of lending to get credit markets going again. Banks have been cutting credit lines and credit cards drastically. Many small business cannot get credit to purchase inventory, even though they have been current on payments. That is the kind of lending that needs to be going on, and we do need to do it like crazy, or the next wave is going to be the small business owners going belly up because they are starved for cash flow and credit.
That is exactly what happened to my family's business. We paid down some of the credit line so we could purchase some supplies with the credit line credit card. Before the supplies were purchased we were notified the credit limit had been reduced by the amount we had paid it down. Now we are out the cash we paid on the credit line and don't have as much credit for the business. It just seems like banks want small businesses to fail.
Romer's giggling, laughing manner isn't good for instilling confidence during these serious times.
Neither is her boss's. The Leno show? I'll bet the unemployed enjoyed that stunt.
We need a team to hit the few factories we have left and help them move their products and start hiring.
The weeks are slipping by and the solutions aren't coming from Washington. Lots of good TV and grandstanding, though.
Home Loan defaults is not causing this crash, Swaps insurance is.
http://www.huffingtonpost.com/users/profile/research
Very astute. CDS are what Buffet called "financial weapons of mass destruction".
When will people understand it was not the lending on the front side that caused this? It was the way these banks leveraged it out the back side. Huge difference . Everyone has painted it as all bad loans and come on people, do you really think that 4% of the loans made would have caused this crisis.
These banks are putting every bad residential and commercial loan in the totals .
eladora, the simple fact is that if your personal financials are in order, you have nothing to fear from any bank collapse (I certainly do not). As long as you can pay your mortgage and put food on the table, it is of absolutely no consequence to you if your lender goes belly up or not and everybody who has planned their life well can manage both the food and the mortgage requirement.
OTOH, we know that this ain't so easy for the majority of Americans, that there is a serious problem in the real estate market and that real people at the "front end" are losing their homes because they did not plan for the worst. Many of them didn't plan at all but religiously believed that the "up, up, up she goes" movement of the market would last forever. That faith was misplaced and it has hit banks just as hard as it has hit home owners.
Not really true. What about all those people who got laid off out of no fault of their own? The domino effects of the financial crisis are humongous, and affect lots of innocent bystanders. I completely agree with Elodora's point, and would say, the financial alchemists on Wall Street chopped and diced these dubious loans to sell them as securities and made fortunes, completely ignoring the risks their actions held. They should be investigated for negligence & be held financially accountable if not criminally.
On another note, Ms. Romer said something even more alarming today, something about investors in the new Treasury scheme will be doing us a favor by participating. Yeah, doing us taxpayers a favor, by using mostly OUR money to buy up toxic assets, so that if the assets are undervalued, they reap big gains; but if not, they have very little to lose (we do, coz we are on the hook for most of the seed money). The whole scheme is a subsidy for people who still have money to play, so be honest and call it such. I can even take it as necessary evil, coz it's in the name of saving the economy. But to call it a FAVOR??? That's just such a bold faced lie that I can not and will not take. She should be ashamed of saying that, and for taking us all for fools! I'd also like it very much, should she be replaced by someone with more decency &
Wrong. Banks "lending mortgages like crazy" is what got us into this mess.
The banks have gone from one extreme to another -- now they've virtually cut of lending completely. That's wrong.
Bring back the balance!
Why? It will not happen and the boom bust cycle will come back. Th edifference is that it will do so when repugs are in power and create an even bigger mess.
Fringies have no concept of reality.
We need banks to lend, but we don't really need too much more consumer debt.
In order for consumers to meet our various debt obligations, we need income. In order to have income, we need better-paying jobs and more of them. In order to have jobs, we need banks to lend to small businesses, especially new small businesses.
We can't count on large corporations to create jobs. They're net job destroyers. The vast majority of new jobs are created by small businesses, and many of them come from businesses with just one or two employees.
We need banks that will stimulate entrepreneurship and convert unemployed wage workers into business owners. We need businesses that are focused on local markets and that recycle their profits back into their communities.
The advantages of a free enterprise economy have been lost due to centralization and integration. Private ownership is only superior to public ownership to the extent that property is widely distributed among a relatively large population of private owners.
It's less important to keep the banking system private than it is to keep it decentralized. But the government bailouts are hurting community banks as much as they were threatened by competition from Wall Street in its heyday.
The total value of loans is less important than the number of loans issued. And if we don't lend at least as much to producers as we do to consumers, then we're only kicking the can down the road to the next debt crisis.
EXACTLY...
We need to nationalize any bank that's in trouble, fire all the top management and split them up into smaller regional banks. Back to where most of them started. The longer we wait to do this the worse off the country will be.
Thank you.. somebody gets it.. .
Small business owners usually operate in very limited market niches and lending more to them does not increase their markets. If you want to be a business owner, you need to have a viable line of business, first. Being a seller on eBay isn't it.
You forget about the impact of large-volume multinational stores moving in and taking over those niches. Is it really preferable to you to have people working as clerks in a big box chain than running working to support their local co-op? Or to have the local garage mechanic and auto parts supplier run out of town by another Auto Zone? Or to have a local restauranteur reduced to working as a cook at the Olive Garden instead of his own bistro? What "niches" and "viable lines of business" might you envision are left wide-open for small business entrepreneurs that haven't now been siphoned off by huge franchise operations and chains?
You could then conclude then that any small operation in a garage or on the Internet is a waste of time! There goes HP, MSFT, GOOGLE, INTC, YAHOO, and thaousands of other successful companies!
Most of them had a poorly defined plan and were more oriented toward developing a product or service they hoped but without knowing when and if it would FLY!
Even in 1 in 10,000 FLIES we all WIN!
"We need banks that will stimulate entrepreneurship and convert unemployed wage workers into business owners. We need businesses that are focused on local markets and that recycle their profits back into their communities."
...or preferably local CUs
I'm saving like crazy.
If we do not get credit flowing to Main Street this could go on for a very long time!
We went from 65% of our economy being the consumer to near nothing
Auto sales at record lows
Home sales near record low
Stores are closing
Banks are closing
Restaurants are closing
Students can not get loans for College
We must get loans flowing again at "FAIR RATES" not HIGH Bank "USURY RATES!"
Consumer spending went down by maybe 10%. If you put that into perspective, that's the economic activity in maybe 2004 or 2005.
The adjustment of sales in the automobile industry and the real estate market merely reflects sustainable baselines and the bursting of bubbles, it does not indicate any particular collapse of a sustainable level of economic activity.
That students need college loans to begin with is the problem. Higher education has to be made free or virtually free like in many other countries. We need to move the burden from the student to the tax payer if we want to survive the 21st century.
Have you been out shopping recently!
Noticed the traffic, closed stores (maybe 15% to 25% or more), homeless, people demonstrating, poeple's moods, homes for sale, foreclosures, .........
This is serious and is not just about how an individual or a particular location is doing!
Build smaller more efficient 'green' cars at an AFFORDABLE price.
Legalize MJ and homes will sell in the states that do.
Get rid of Wal Mart....small stores will flourish.
Regional home town banks that know who you are.
Serve European size servings instead of all you can eat and lower prices.
Hooray for Obama's plan for Pell Grants!!!
We cannot get loan because credit card companies ruined most of our credit with unpayable 30-33% interest.
Amen
I like much of what you say!
Thanks for the ideas!
It's just like Pres. Obama said. Everyone is a Simon Cowel. And Steve Clemons is no exception.
Your article is out of sych with the timing of reality.
The Fed has printed up 1.5 dollars for every dollar formerly in the economy.
They did not do this to loan the money to you!
They did this to loan to their corporate buddies, so they can scoop up all the "bad assetts" that they can like your home or small business.
Then they can begin loaning the money to you, once the hyperinflation has set in, and you need to borrow the hyperinflated dollars to survive. This is the nature of modern interest rate slavery to corporate masters.
The very act of buying everything they can with dollars which have been removed from the value of everything you own and have saved, well what remains of what you saved; is what powers the next round of tightening the collar around your neck.
1) So, don't borrow if you can't pay it back (don't fall for being in "debt slavery"
2) Bust your butt (in school, at work, etc.) so you can make enough money to not have to be beholden to "the man" - struggle through higher level math and organic chemistry, don't have babies you can't afford, don't do drugs, smoke or participate in government idiocy like lottery tickets.
Or complain like a sophomore, your choice.
If the Fed keeps printing money like it now is and if the President (and this is unlikely since Congress won't go along) gets his budget passed to solve every problem he can imagine, from health care to alternative energy, then you can be assured of an 18 pct interest rate on mortgages - just as they were with that last great Dem idealist in the White House, Jimmy Carter.
It is very sad when a person puts out a poorly thought out statement for millions to read. Lending like crazy did not get us into this mess. Lending like crazy to unqualified borrowers got us into this mess. That is an important distinction that you seem intellectually unable to see. It would be nice if you though about what you write and its implications prior to publishing.
So many qualified borrowers that I know personally have been unable to get loans to fix up their homes, buy businesses or remodel investment property. If they had received those loans, that money would have gone into the economy employing hundreds of people. Unfortunately this recent unwillingness and inability of banks (lack of liquidity) to make loans has had a negative effect multiplied many times over on our economy causing needless poverty and suffering.
Wrong. Wrong. And wrong. We need to invest in the future, and stop the frenetic spending for immediate consumptive satisfaction.
And I don't know any qualified buyers who can't get credit. The offers are pouring in every day from the banks and credit card companies, for lines of credit, refinancing, balance transfers and purchases with no interest for a year or more. My mailbox is sagging from the weight of these offers each and every day.
But it's time we stopped spending ourselves to death and invested in the future. Energy, health care, education, the environment, and it's time we stopped the endless, pointless wars.
This idea that there are unqualified receivers of loans misses some points. First of all, why did the banks make loans to unqualified people? Secondly, if wages are not increasing in the US at the same rate that housing prices are...where is the value of the homes coming from? Americans have been using the increased value of their homes to essentially make up for lost wages. But for most people wages are the only real source of wealth.
The other major point you are missing, and I missed for a while, is that the reason the banks are not lending now is that they know Mr Geithner and Larry Summers, and rest of Obama's economic team are part of the gang. The banks are playing a chicken. The politically connected banks like Goldman Sachs got their bailouts early and indirectly (via AIG) and now they can wait out the storm while smaller banks crash. They will wait and then buy up all the competition and use money that Geithner is going to give them.
So we could end up with two or three uber-banks. If you think the old banks were too big to fail then hold on to your socks because the uber-banks will make their own weather.
What's really sad is the need for you to write that first paragraph. Did it make you feel better? If so, I suggest you print it out and use as appropriate. It's one thing to disagree with a writer, and another to trash his thinking and intellectual capability -- from your self-assessed high ground.
'Lending like crazy' includes far more than you are aware of, including 'bait-and-switch' to qualified borrowers; don't forget the easy mail offers of more and bigger credit cards; car loans; student loans. And recall that 3/4 of all mortgages -- ALL -- were sold on in the Great Securitization Swindle. That would include loans that went back for more than just this decade -- many of which were serviced properly, up until medical problem or loss of job.
'Lending like crazy' went hand-in-hand with consumers dropping to negative savings -- that was a real negative effect. 'In the day' people saved first, rather than expecting 100% debt-led prosperity.
I think "unqualified borrowers" was what the "crazy" part was referring to. Though I'm guessing criminal intent had more to do with it than mental illness.
This qualified borrower got offered a new line of credit just yesterday. No big deal. If you have the income, you can get the loan. If you can't get the loan, all it means is that you don't have the income.
We were offered around 4% interest and no points, by the way. And I am sure, if I shop around some more I can get 3.75% somewhere.
Steve,
On the nature of the problem.
Many folks screaming here about their own symptoms.
And Ms. Romers commentary aims to treat those symptoms.
Where's HOUSE ??
The solutions proposed are all aimed at "putting out the fire".
Get them lending like crazy again.
How does that feel, honey? Better now?
THEN, we can figure out what actually CAUSED the problem, and we can figure out if BORROWING $TRILLION to get the banks lending like crazy again was the right thing or not.
Ohhh! Not feeling too good already??
Ohhhh..! Feeling even worse than before??
Much worse ??
Let me check that prescription.
The reason we are being force-fed a national taxpayer bailout of the failed investments of deregulated American bankers should be clear.
No matter WHAT, we MUST preserve the private debt-money system of the federal reserve bankers in this country.
The rhetoric on which this plan is based goes like this: 'Whatever we do, we want to preserve the PRIVATE BANKING SYSTEM in this country.
Hog-friggin-wash!!
Preserving the private banking system is EASY.
What they want to preserve is the debt-money system.
And in order to do that, we need to have the taxpayers take over those bad investments.
Get the taxpayers on the hook for TRILLIONS in new debts, repayable with interest to the federal reserve bankers.
It's called putting out the fire of monetary rebellion.
Whoever controls the money controls the economy.
Well yeah. Exactly right. I think you could shorten your comment down to the last section "Preserving the private banking system is EASY".... and that would be more effective.
The thing everyone keeps forgetting is that money is actually worthless. What I mean is it is just paper. It is the belief that if you take it somewhere other people will give you stuff for it. When enough people lose faith in the dollar it won't be worth anything anymore. That's where I see this heading. All the money is going to be in a few hands. That just means that we will have to go back to the bartering system. And the united states will just dissapear.
Borrowing will NOT help the situation, no matter what any president or pundit says. Americans borrow every time they use a credit card. A false economy, based on inflated figures, calculated by erroneous info will NOT be helped by borrowing more from the future.
Americans need to save instead. Our economy should not be based on borrowing. Interest based earnings do nothing to advance society or put the unemployed to work. All it does is create a shallow economy subject to criminal enterprise. The old, "something from nothing."
An economy based on spending or borrowing money they do not have, and in some cases, never will, creates a false sense of security. A nice house, fancy car, second home bought on credit and at inflated prices suffers as we have seen.
Reduced spending in ALL sectors; family, business and government, will in time, be a better solution than more spending. Counting on financial institutions to turn around and return billions to the people is ludicrous at best.
Using billions if not trillions to prop up the same institutions responsible for the meltdown borders on being criminal.
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