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The Fed just doesn’t get it.. February 9, 2009

Posted by The Armchair Economist in Business, Commentary, Consumerism, Economics, Politics.
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Late 2008, the the Fed gave out ~$350b, about half of the $700b ‘bailout’  Congressional hearings showed that  there was very poor accountability towards how banks spent that money.  Rather than  loan it out, banks just hoarded it.  When asked why they weren’t loaning the money, they said that they are increasing loan requirements due to the poor economic outlook.  In other words, the banks are doing what they should be doing… assessing the risk of nonpayment to potential borrowers.

Today, the Fed announced an overhaul in how the rest of the bailout money will be used: it will be used to buy back the ‘toxic assets’ that are supposedly weighing down the banks balance sheets.  How does this change the fundamental problem of banks not loaning the money out?  (more…)