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04/19/2009

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Marriner Eccles

Excess reserves DO receive interest now.....please do research before you blog

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Lewis

If you think it is relevant, would you please comment on the significance you see, if any, in the fact that TARP funds were disbursed to bank holding companies, rather than the actual banks? Opinions have been expressed that this is one of the main reasons TARP failed to stimulate lending. Do you agree? Would it have been wise for Treasury to insist that the banks receive the money directly? Was stimulating lending really a goal of the program (as opposed to merely a stated goal), or was it more to improve the balance sheets so no bank failed or endured a run? If you think any of these questions are pertinent, thank you for commenting on them!

DanC

Our current troubles are also related to the Fed reaction to yet another price shock from oil prices. Plus higher oil prices, combined with troubles in the financial sector, combined to finally topple the domestic auto industry.

Michigan, Ohio, and Indiana are suffering from the collapse of the auto industry. Florida, Nevada, and Arizona are suffering from the housing sector. The Carolinas are suffering from the collapse of the banking sector. California is a huge political failure of high taxes, excessive regulation, and questionable social programs.

Combine this with a new administration in Washington that wants to impose wage and price controls on the health care system, increase energy taxes, and uses the Social Democrats in Europe as a role model.

What do we get? We have an economy suffering from systemic failure.

Next, I disagree that we had excessive deregulation. We had bad regulations that socialized the losses and privatized the profits. Plus, for reasons I don't fully understand, private rating agencies failed to maintain transparency in the system.

Lastly the form of compensation in the financial sector was a disaster. The compensation system was not connected to the long term health of the firm.

Financial institutions created a game that workers quickly learned to exploit. Workers could become very rich, very quickly if they were aggressive. But this created a moral hazard were workers took far greater risks then was optimal for the firm. Workers were overpaid in that their compensation became disconnected from the long term interests of their firms.

Bad government regulations socialize losses and privatize gains which encourages excessive risk taking. The compensation system at these firms created a system were workers could become extremely rich if they took risks and then seemed shocked that excessive risks were taken

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Myles SG

It occurred to me that there is actually a correlation between recessionary pro-cyclical lending practices and long-term bank health, and a trade-off between that and the general state of the overall real economy.

The fact of the matter is that the banks which most quickly reduced their lending and limited themselves to their most trustworthy customers would be in the greatest financial health. Trying to lend expansively in a recessionary environment is foolish; no amount of government stimuli will correct the added risk, as a large part of it derives from eroding personal equity. Thus, those whose lending practices are most in line with anti-recessionary goals will actually suffer the most, whereas the most conservative banks will be stronger and will wait out the recession as such time the economy has recovered enough for them to re-expend.

The recession itself cannot be correct permanently unless the banks are returned to full health; it's a chicken-and-egg problem, but methinks its the overall economy that's the chicken and bank lending the egg.

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In this recession time everything is down.

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Why did the bankers not lend the money they received from the government? the answer is perfect.make me stounding.

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