We’ve heard it before. I’m sure we’ll hear it again.
Wall Street banks and their greed caused the Great Recession. And what’s more, it’s those same banks, sitting on our money given to them via TARP, that are KEEPING us in recession because they won’t lend money!
But is it true?
Federal Reserve chairman Ben Bernanke thinks so:
FORTUNE — In a speech last week, Federal Reserve chairman Ben Bernanke said banks across the country are systematically denying loan requests from financially credible small businesses. Bernanke implored community banks to lend more to small businesses, saying they are “crucial to America’s recovery.”
That’s weird though. Cause banks are in business. And they’re in business to make money. And how does THAT happen?
Banks earn profit from issuing loans to small businesses, and they want to make more of them, according to community bankers in different corners of the country.
What the…? You mean banks WANNA loan money? Well then, it must mean that the banks themselves don’t have money:
Most of them have the cash on hand to make this happen.
Interesting. Then what, pray tell, is holding the banks up?
“If there were people to lend to, we would do it. We want to help our own economy,” says Jim Klussman, chief credit officer of Sunrise Bank in Arizona. “But there aren’t viable borrowers, and then we’re criticized by the federal government for not lending enough.”
So, banks have money, small businesses don’t want the money. How about the big businesses:
Companies like Microsoft are raising billions of dollars by issuing bonds at ultra-low interest rates, but few of them are actually spending the money on new factories, equipment or jobs. Instead, they are stockpiling the cash until the economy improves.
So how much money do these companies have?
Corporations now sit atop a combined $1.6 trillion of cash, a figure equal to slightly more than 6 percent of their total assets. In the first quarter of this year it was 6.2 percent of assets, the highest level since 1964, when it was 6.4 percent.
And what are they waiting for?
Michael Gapen, an economist at Barclays Capital, says “The mix of signals right now is still telling corporations to sit tight and wait.”
Mr. Gapen said those signals included the direction of the housing market, the outcome of midterm election, the effects on the economy as the fiscal stimulus wears off and any changes in tax policy.
- Housing market
- Tax policy
In other words, business wants to wait and see what the government is going to do:
Daniel Doyle, CEO of Central Valley Community Bank in California and former chair of the California Bankers Association, “don’t trust the government, because with TARP, all the rules changed.”
And there ya have it.