Federal Reserve: Don't Get Excited, We're Not Done Bailing Out Banks Yet
Federal Reserve chairman Ben Bernanke said that the $800 billion stimulus plan being discussed by the new administration might "provide a significant boost to economic activity," but that it wouldn't work without more bank bailouts.
From CNNMoney:
...Bernanke cautioned that the plan is "unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system."
Bernanke suggested that more banks and financial firms are likely to need additional capital injections from the government, and that further guarantees of their debt could be necessary, in return for the federal government receiving further equity in the firms.
The Fed chairman also said that "removing troubled assets from institutions' balance sheets, as was initially proposed for the U.S. financial rescue plan," might also be needed to supplement any further investments in banks.
He also added that he didn't think that the financial meltdown necessarily showed that there was insufficient regulation.
"What we've learned in this case is not necessarily that we need a lot more regulation," he said in response to a question following his speech. "We need to think what went wrong...We need to think very hard about how to fix it."
He concluded that while better regulation is necessary and will have to be addressed soon, it is not the most pressing need at this moment.
"It's good advice in general if there's a fire burning, you try to put it out first, and then think about the fire code," he said.
Bernanke: More bank bailouts needed [CNNMoney]
(Photo:frankieleon)
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So, anybody actually think this is going to work? And how does the government keep finding money for this? What happens if people quit buying government debt and suddenly the funds dry up? We have states on the verge of insolvency, can the federal government get to that point?
Build a man a fire, warm him for a day. Set a man on fire warm him for a lifetime.
I'm all for letting this fire burnout.
>We need to think what went wrong
>We need to think very hard about how to fix it.
>if there's a fire burning, you try to put it out first
Man, I'm really thankful we have intelligent people like him at the helm. I mean, these realizations would have never occured to a simpleton like myself.
These are the same banks that are currently sitting on their initial bailout money and not lending it to anyone. Why do we want to give them more when they're not really using what they were given to begin with?
"It's good advice in general if there's a fire burning, you try to put it out first, and then think about the fire code," he said.
That is exactly how people burn themselves and burn down their homes, they dont think first.
I know that my comments on a blog on the Internet will do shit to stop any bailouts, but I can't believe the banks can be asking for *more money*. We already gave them an unheard of amount of money to "keep the lending market from freezing up" but, oddly enough, it's hard as hell to get a loan. It's very easy to pin our current economic problems on the banks and their crooked ways of doing business and we're basically rewarding them for their failures. Yes, I know it'll cause a lot more hardship if they do fall, but if the hundreds of billion dollars we've already given them haven't helped why would any more hundreds of billions of dollars help? May as well create some jobs to by rebuilding our infrastructure so we can better weather the seemingly unavoidable collapse of these banks.
@mindshadow: I agree...if given the mutually exclusive choice of giving banks more money or creating a bunch of government jobs, I'm leaning toward the latter.
It's a sad, sad time in America if the best I can hope for is a bunch of new government jobs. That's one ugly teat to suckle.
This seems to me like the crew of the Titanic saying "screw getting people on the lifeboats, lets get down below with our buckets and start bailing!" It's still going to go down just as fast, and more people are going to go down with it.
That former KGB agent may not have been so wrong after all about states having money and freezing the federal government out. I wouldn't want MN to give their money to the government so they could give it to Merrill Lynch.
@K J: the beauty of a fiat currency is that the government can just print more when it's needed, with absolutely no negative consequences!
Remember that first 700 billion? You know, where the entire world's economy would collapse if its not delievered IMMEDIATELY. Guess what? They haven't done anything with it, half of its still in Washington and we're all still here.
They want the money? They need to be regulated. We can see they're like kids in a candy store without someone looking over their shoulder.
Thomas Jefferson:
"All the capital employed in paper speculation is barren and useless, producing, like that on a gaming table, no accession to itself, and is withdrawn from commerce and agriculture where it would have produced addition to the common mass… It nourishes in our citizens habits of vice and idleness instead of industry and morality… It has furnished effectual means of corrupting such a portion of the legislature as turns the balance between the honest voters whichever way it is directed." ~Letter to George Washington, 1792
@K J: Your concern is valid but if we go under so will the rest of the global economy. China is still buying out debt, but investors (us based) are also buying treasuries since it is the one safe investment they can do.
if they had used the money to help homeowners in the first place, the banks wouldn't need to offload their troubled assets - they would've been taken care of already.
where's the comprehensive plan for determining which loans can be saved & providing the assistance necessary to save them? without that, i really think this is utterly pointless. we're just bolstering balance sheets for the benefit of a few at the expense of the many.
Still trying to figure out why (1) banks lend money to people who can't pay it back, (2) a complete meltdown of the economy happens, and (3) the solution to the problem is to relax the lending standards so money flows freely again to home buyers, credit cards, etc. Shouldn't the solution be tightening lending standards to sane levels?
@mindshadow: The story I saw this a.m. was saying that Congress is very reluctant to release the money unless it comes with ENORMOUS regulations on the banks that take it, as they're kinda pissed about how the last round went.
Its amazing how much more intelligent and competant consumerist readers are compared to the posters on nyt and cnn.
the readers here on consumerist have learned not listen to these financial idiots after being wrong countless times.. you should see these people on other sites who actually think keynsian economics is the way to go.. lol sad...
that being said, if you want to know how this whole system is really working .. you tube ron paul ... http://www.youtube.com/results?search_query=ron+paul+on+federal+reserve&search_type=&aq=f
or look up mises or the austrian school economics in google..
Giving money to the banks isn't going to do ANYTHING unless they do something to get consumer spending going again.
Banks can be brimming over with funds but if people don't have money to spend, the economy will continue to sink.
Trickle-down schmickle-down.
Forgive my flight of fancy here, but this just reminds me of Magikarp from the Pokemon games.
No matter what obstacle he fights, no matter where you catch him, no matter what you want him to do, all he knows how to do in any given situation is "splash."
If the US government were a Pokemon, it's only attack would be "Throw Money."
You know, it's just AWESOME that I read this article in my feed reader right after I finished reading a local news story about how most of the school districts in my area are being forced to make deep, deep cuts because of funding issues.
It's just so wonderful that we can print up all this imaginary money for the banks to hoard instead of forcing THEM to make salary and staffing cuts and run their businesses more responsibly, yet we are content to do a shoddy, ineffective job of educating our future generations of adults to be ready for the world.
(And yes, I'm aware that money for the schools typically comes from a different tax source than the money that is being magically created to coddle our irresponsible banking system, but if this recession is supposed to teach us anything about re-prioritizing, then artificially propping up businesses instead of forcing them to make the tough, hard decisions we are asking institutions like the public school system to make about how to be more stable and function with fewer resources certainly isn't the way to do it.)
Perhaps things should be left alone since meddling got us into this mess to begin with. Let some natural selection happen.
@Trencher93:
(1) the assumption made during the years leading up to the crisis is that whether or not the homeowner could pay a loan didn't matter - the bank could always take repossession of the property, sell it at auction & recover their initial investment (plus a load of fees/interest)
(2) obviously, they made the wrong assumption
(3) the solution isn't to restore lending levels to what they where previous to the crisis - it is to restore them to a reasonable level. the pendulum has swung so far in the opposite direction that even people who have good credit & could pay back a loan are having trouble obtaining credit. & when i say "people", i also mean businesses that rely on credit to operate.
i work at a credit union that is still lending & within the past 3-4 months, something new (& a little scary) has happened - dealers are starting to send their "good paper" our way b/c they can't find banks to finance the loan. we have no problem financing these people b/c overall, they are a sound investment. but the normal financial partners won't touch them.
The education in this country is definitely underfunded. But fuck that, there's a couple of fags trying to get married. Protect the family!!!
Our priorities are about as fucked up as they can get.
Aww all those Ron Paul supporters were right after all. Down with the FED!
The meltdown doesn't show there's inadequate regulation?
That's like going out in the rain with a colander over your head and claiming that your wet hair doesn't prove that colanders don't make great umbrellas.
Supposedly, the authorization for the final tranche of the bailout loans, while approved under Bush's watch, and to be spent under Obama's, will be given with tighter controls and trade-offs for recipient institutions.
They say they'll get a handshake on it; that getting everything down on paper might slow the process.
I say, to quote The Gipper*, "Trust. But Verify." Lock that baby up before another dollar is authorized.
* I know!
@Trai_Dep: I would really like a lot more than just tighter controls, though tighter controls are certainly necessary. I'd like to see antitrust actions, and prohibitions against future re-mergers, against all of the "too big to fail" banks, so that we don't have to bail out any huge banks in the future. I'd like to see all of the executives and boards of these banks fired. And I'd like to see the bailout money come with the condition that the government temporarily takes control of the banks and gets to audit their books from top to bottom, correcting any shady practices as they go.
>>Ben Bernanke said that the $800 billion stimulus plan being discussed by the new administration might "provide a significant boost to economic activity"
LOL, sure it will Ben. 'Hey yeah we're in a depression. I've got an idea. Let's devalue the dollar even more. The bad debt is only bad if we say it is'.
Why stop at billions, let's do trillions next. God help us, apparently Ben doesn't believe FDR threw ENOUGH money at the problem. It's Depression II but bigger and better, Republican style...800 billion? I would ask if anyone has heard of the Weimar Republic but apparently Keynes is still in fashion with some folks..
I missed a credit card payment and they called asking for the strong measures that I owed them.
@kathyl: The Federal Government can't solve the education funding issue because using imaginary money to buy real things is almost impossible.
@Applekid: If your car bursts into flames, first you have to give lots of money to the people who manufacture the cars, since the bad press will cut into their sales.
Then you have to think about why the car caught on fire. I think. My head hurts now.
@Eyebrows McGee: I was under the impression that a lot of the banks didn't want the first round of bail out money anyway. They were making money servicing the loans that they wrote and sold, and they weren't interested in writing many new loans since there was little market left to buy them.
But some banks were forced to take a portion of the money so that the banks who wanted it wouldn't look weak which would cause a bank run type situation. That's why Congress couldn't put stipulations on the money, because the healthy banks woudln't accept it that way.
So I don't understand what Congress wants to do. They want to force banks to take money and loan it out? I don't see that happening.
Where are we going and why are we in this hand basket?