Theodore's World: Obama Pressures Bankers To Lend More; Back Reform Bill

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December 16, 2009

Obama Pressures Bankers To Lend More; Back Reform Bill

Obama pressures bankers to lend more; back reform bill

Market Watch

Barack Obama on Monday pressed the chief executives of the nation's largest banks to lend more to small businesses, increase their assistance to troubled homeowners and end their opposition to bank regulatory reform legislation moving on Capitol Hill.

"I urged these institutions here today to go back and take a third and fourth look about how they are operating when it comes to small business and medium-sized business lending," Obama said after meeting at the White House with the bankers. "Banks could be doing more to lend to small businesses." See full text of Obama's remarks
The president met with the executives after calling them "fat cat bankers" on network television Sunday night and attacking their multi-million-dollar bonuses on CBS's "60 Minutes" program.

But despite the president's fighting words, executives described the meeting as "very productive" and said the White House and the major banks are generally aligned on executive compensation, bank reform, and the need to help the economic recovery continue.

U.S. Bancorp Chairman Richard Davis told reporters that the meeting set the stage to "move forward to the next level of cooperation" with the administration, and that the banks want to make more loans.

"Lending is what we do ... we want to make more loans," said Davis.

‘Crack-up boom’ would be the worst of all possible outcomes

Bank reserves held at the Fed have increased 100-fold over the past 14 months -- from around $10B in August of 2008 to around $1000B ($1T) today. It is important to understand that while this explosion in the reserves of U.S. depository institutions has rightfully prompted much discussion and consternation, it hasn't directly added to the total supply of U.S. dollars (bank reserves are not counted in monetary aggregates such as M1, M2, M3, MZM and TMS).

The reason that bank reserves aren't added to the money supply is that they do not constitute money available to be spent within the economy; rather, they constitute money that could be loaned into the economy or used to support additional bank lending in the future.

Bank lending in the U.S. has declined on a year-over-year basis, so we know that the spectacular increase in reserves has not YET contributed to monetary inflation. Many analysts and economists view this as a problem, their belief being that the banking industry should support the economy by putting its excess reserves to work. To be more specific, they want the banks to lend more new money into existence on the basis that more debt is 'just what the doctor ordered' for an economy weighed down by the highest debt levels in history.

Not surprisingly, we see things differently. We think it is fortunate that banks have, to date, chosen to 'sit' on their reserves, because if they decided to use the reserves to support trillions of dollars of additional lending then the inevitable result would not only be an even more troublesome debt burden; it would also be an inflation problem of immensely destructive proportions.
If the private banks were to join the inflation party then the risk of hyperinflation would greatly increase, and hyperinflation -- leading to what Mises called a "crack-up boom" -- would be the worst of all possible outcomes. In particular, it would be an order of magnitude worse than the deflation that many people still seem to be worried about.
So, let's hope that the banks don't start lending out their excess reserves. The situation is bad enough already.

And this regarding the job market from Rush Limbaugh:


Wild Thing's comment..........

was loose lending practices that got the banks in trouble in the first place. Now that they have been tightened up Obama wants the financial institutions to get lax again. If they do they will probably create the same problem all over again. Unbelievable. And three more years of this guy!

This is Obama's pick another demon, just like when Po Pot executed innocent scapegoats because his communists couldn't manage a few rice patties.

So we don't care if we are out of a job, as long as we have someone to blame, let's see:

GWB, Rush, FNC, the banks, Wall Street, Chamber of Commerce, Health Insurance companies, Wow, the list of evil-doers screwing us for profit is growing. Good thing we have Obama! NOT!

.... Thank you Jim for sending this to me.

Posted by Wild Thing at December 16, 2009 02:47 AM


The thing about Banks and has always been that way, except in the era of Carter/Clinton/Obama. The banks theory:

"Banks only loan money to people who don't need it."

I know this sounds crazy but think about it how did they get into this mess, the Government forced the banks to loan money to people "who needed it" they loaned money to people who didn't have collateral and basically didn't even have a job and were using their Welfare Check stubs as proof of employment, Of course, they went belly up. To make matters worse they sold these bad loan to Europe, a lot of them, to get rid of them, then Europe found out the loans were worthless and demanded their money back. Hence TARP was born. A lot of that TARP money was used to pay off the bad deals to Europe.

So now obama wants more of the same. More loans to risky clients. Problem this becomes a endless cycle defaulted loans, bank repossessions and the bank loses a whole lot of money on defaulted Repo's. Then they will come back to the government for more bailouts.

Glenn Beck says, the definition of crazy is doing the same thing over and over again and expecting different results.

Posted by: Mark at December 16, 2009 11:18 AM

I am not a financial expert. I believe in cash and have stayed out of debt, not even a home mortgage. I saved up for my home and payed cash.

That being said I can see how loans for homes and businesses help move the economy. However, these debts need to be realistic and the gamble has to be made in a thoughtful manner. Mark said it when he stated that when the banks were forced to make loans to people who had no history of reponsibility is when the economy went topsy turvey.

More of these bad loans and greatly increased government spending are going to lead to another Cater era of inflation. Gold has gone well over $1000 an ounce and that is a sign that a lot of people are worried about the value of their money declining.

Posted by: TomR at December 16, 2009 01:14 PM

Mark, thanks for the information. Your
right too about repeating the same mistakes
over and over again.

Tom, your right, the Carter era is hanging
over this like a dark cloud waiting to happen.

Posted by: Wild Thing at December 17, 2009 12:40 AM