In a non-proprietary E-mail message sent today, Bob Eisenbeis of Cumberland Advisors addressed the recent WSJ article alleging that TARP recipients have not lent their government-provided funds out. This blog has no expertise in that argument, but notes with extreme interest the conclusion of the message, which is titled, simply, "Bank Lending". Here is the intro and the (more relevant for our purposes) finale:
In an article this Monday the WSJ reported that lending by banks that had received TARP funds had continued to decline since the inception of the program and that this “paints [a] starker picture than official government snapshots.” The article focused almost exclusively on the recently released loan origination data by Treasury on lending by major TARP recipients, but failed to consider other information in the data set or more current data on bank lending provided by the Federal Reserve. . .
When one (reviews) data from the Federal Reserve's H.8 release on bank lending, which is now available through the month of March and into the first week of April, overall bank credit is currently only slightly below what it was at its peak in October of 2008, which was nearly one year into an economic downturn. More importantly, given the severity of the downturn, lending is still substantially above where it was at the start of the recession or any month prior to the peak in October 2008. This is true for virtually every single type of credit, be it real estate lending, consumer loans, or C&I loans. In short, whatever retrenchment that has taken place in the TARP institutions in the C&I loan or credit card areas looks to be a rather recent phenomenon and seems to be relatively minor when compared to the volumes of outstanding credit currently being provided by the banking system as a whole.
Assuming that Dr. Eisenbeis' interpretation of the lending data is en pointe, several conclusions occur. One is of course that there is enough lending going on, and perhaps too much for a "normalized", sustainable level of economic activity. Other conclusions of course relate to various explanations for the need to transfer taxpayer wealth to Big Finance.
One suspects that just as the 2001 recession and bear market in stocks was minimized by excessive debt creation, the authorities are trying to do the same with this worse "recession". The suspicion here is that this strategy is dealing with a sicker patient, so that the remedy will likely be less affected; or an addict who is now more tolerant of (resistant to) the addicting substance.
What the economy really needs is another new new thing. In the past this has been the wave of consumer goods in the 1920s, victory in World War II, better living through chemistry in the 1950s-60s, disinflation in the 1980s, and the Internet etc. in the 1990s. Eventually, perhaps green energy could help fill that bill, but that's far from a 2009-10 situation. Until then, one should be skeptical that more of the same will do any more than another drink will do for an alcoholic.
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