H1G1 Alert

Looks like Sheila Bair of the FDIC has fallen victim to H1G1 or the Geithner strand of H1N1.  Symptoms include nausea, diarrhea, dizziness,  and an irrational belief that the way you sober up a drunk is by giving them more booze.  From the WaPo:

Lending by U.S. banks plunged by 2.8 percent in the third quarter, the largest drop since at least 1984 and the fifth consecutive quarter in which banks have reduced lending, the Federal Deposit Insurance Corp. reported Tuesday.

The decline in lending is emerging as a serious impediment to economic recovery. Banks reduced the amount of money extended to their customers by $210.4 billion between July and September, cutting back in almost every category, from mortgage lending to funding for corporations.

Uh, would 10.2% unemployment mean anything to you, Mr. Appelbaum?  If people aren’t working, they shouldn’t be asking for credit and small businesses don’t need credit right now.  They need paying customers.  I’d never expect a bank to be aggressively making loans in this environment.

But don’t let prudence, logic, and reason get in the way of that pointer finger.  We’ve found someone to blame so we’re going to blame them until we can’t blame them anymore.  Sure.  Let me know how that goes for you.

More from the article:

Large banks, the beneficiaries of billions of dollars in federal aid intended to spur new lending, were responsible for a disproportionate share of the decline, the FDIC said. “We need to see banks making more loans to their business customers,” FDIC Chairman Sheila C. Bair said Tuesday.

Bair renewed her call for the government to spur lending by helping banks sell troubled loans, freeing up money for new lending. The Obama administration has considered several versions of such a program but so far has resisted calls to proceed.

And there it is: Sheila Bair, consider yourself an H1G1 patient.  You have the Geithner strand of H1N1.  First you call on banks to lend, but the only way they’ll be able to (in your mind, anyway) is to go along with your stupid, reckless idea to sell their loans to the FDIC and then you sell them for even less than you paid for them, putting taxpayer money at risk throughout the entire process.

There’s only one cure for the H1G1 and it has two parts.  First, tiny Tim Geithner must resign and then we have to let the free freer market do what it does best: price discovery and meating out punishment to those who were reckless and blind to risk.

That’s how a market system works and if we stand in the way of the market, we’re ultimately standing in the way of our own progress.

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Filed under finance, government, Markets, Timmay, Way Forward, You're kidding

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