patrick.net

It is totally reasonable to be prudent and conservative in lending. However, I don't think it is necessary to keep the money if you don't use them now. Let others smaller banks who need the capital have access to the fund. These bank can use the money to buy T-Bonds with higher than 0% interest. They are basically borrowing from government with no cost and lend it back to government by charging interest. Sick.

The banks are in reality insolvent.

Accounting rules changes by our government early in 2009 allow them to appear solvent by not marking their assets to real value.

The banks can borrow at 0% and loan at 5% and above.
The Fed does not want banks to lend, that is why them are paying them interest on their reserves.
Banks are repaying Tarp in dollars from the taxpayer.

If banks foreclose, they need to recognize a loss, pay property taxes and mark the investment to the market rate. They will avoid that as long as possible.

Not the whole story. Bank regulators are on putting heavy pressure to build reserves for coming problems. Lots of banks are doing this by buying tbills. That is correct, banks are borrowing at 0% from the government, then lending the same money back to the same government at 2% with zero risk. Not only this, the tbill sales are being gamed to look like a lot more of the sales are to foreign buyers than is actually true. This keeps foreign buyers in the game. If Tbills were an honest market the rate would skyrocket. This would push the interest on the debt through the roof. Either way the taxpayer gets burned. Standard issue punt the problem downfield political games.

Thanks bob,

I believe that to be true. I laugh at the politics of the whole thing because its pretty transparent. Obama and congress says they should lend, the Fed puts incentives in place not to lend. I do think things are going to hit critical mass. Its just a matter of time. These hooligans have been suprising lucky so far.