The prospects for credit market revitalization
Today you get more Felix Salmon, who nails it:
America’s banks — and the world’s, for that matter — have had de facto
unlimited access to very cheap Fed liquidity for many months now. That
hasn’t induced them to lend. Will this latest recapitalization do the
trick? I’m far from convinced. And what’s more, the demand for loans is drying up fast: do you
really feel like buying a bigger house right now, or taking out a car
loan? Well, businesses are in the same boat. In a recession, their ROI
falls, so they borrow less.
I am, however, a little worried about Felix’s proposal to make banks lend the money. It’s not that I have a better idea, but I suspect any scheme of compulsion will bring either higher risk or ways to game the scheme or both. And if bank shareholders and CEOs do not wish those loans to be made, our current system of corporate governance quickly becomes unworkable.