The U.S. Government: Loan Sharking Funny Money?


$2 trillion apparently is not enough. And if you're wondering when the funny money madness ends, let me clear that up for you: never. At least not until the money runs out. And when you've got your own printing press and a name for yourself (if waning) as the world's preferred reserve currency, that might take awhile. But not if the U.S. government keeps pulling "recovery" schemes out of its ass.

Read carefully. The banks say it's the market's fault. I say they got greedy and relied too heavily on the financial unicorns tied up in exotic credit instruments. But what do I know?

Credit cards, home equity lines, student loans, car financing: none come cheaply or easily in these credit-tight times. The banks, the refrain goes, just will not lend money.

But it is not simply the banks that are the problem. It is also what lies behind them.

Largely hidden from view is a vast financial system that serves as the banker to the banks. And, like many lenders, this system is in deep trouble. The question is how to fix it.

Most banks no longer hold the loans they make, content to collect interest until the debt comes due. Instead, the loans are bundled into securities that are sold to investors, a process known as securitization.

But the securitization markets broke down last summer after investors suffered steep losses on these investments. So banks and other finance companies can no longer shift loans off their books easily, throttling their ability to lend.

The result has been a drastic contraction of the amount of credit available throughout the economy. By one estimate, as much as $1.9 trillion of lending capacity — the rough equivalent of half of all the money borrowed by businesses and consumers in 2007, before the recession struck — has been sucked out of the system.

Banking chiefs, who have come under sharp criticism for not making more loans even as they have accepted billions of taxpayer dollars to prop themselves up, say it is the markets, not the banks, that are squeezing American borrowers.

While everyone else is blaming derivatives for the collapse of our financial system, it makes sense that the banksters would jump on the bandwagon as well, doesn't it?

Don't worry, banksters, OMGObama and the Fed are ready with a blank check to lube up your lending.

The Obama administration hopes to jump-start this crucial machinery by effectively subsidizing the profits of big private investment firms in the bond markets. The Treasury Department and the Federal Reserve plan to spend as much as $1 trillion to provide low-cost loans and guarantees to hedge funds and private equity firms that buy securities backed by consumer and business loans.

The Fed is expected to start the first phase of the program, which will provide $200 billion in loans to investors, in early March.

But analysts question whether this approach will be enough to unlock the credit that the economy needs to pull out of a deepening recession. Some worry it may benefit only select investors at taxpayer expense.

The program also does not try to change securitization practices that, many investors say, spread risks throughout the world and destroyed financial institutions. Policy makers acknowledge that for now, fixing credit ratings, reducing conflicts of interest and improving disclosure can wait.
Another fix the debt problem with more debt solution. And this is the best Tim Geithner could come up with? Really?

I'm starting to like Bernanke's helicopter idea more and more every day. If we're going to screw everything up and kill the dollar, might as well get a PlayStation 3 and some new shoes out of it before hyperinflation hits.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.

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