Banks Got Our Money Cheap; Where’s Our Recovery?
|January 23, 2014||Posted by Staff under Financial|
This 2014 excerpt of Huffington Post, Jan 21, is by Mary Manning Cleveland of Columbia University.
In its program of “Quantitative Easing” or “QE”, the Federal Reserve Bank creates brand new money to buy billions of U.S. Treasury bonds and other Federal securities from the big banks. QE keeps down longer-term interest rates, which will, it is hoped, encourage investment and stimulate the economy.
By purchasing bonds from Fannie Mae and Freddie Mac, which buy mortgages, QE has kept mortgage rates down and real estate prices up. That’s nice if you qualify for a loan, or if you’re a bank holding real estate collateral.
By keeping bond yields very low, QE has sent investors away, into the stock market looking for better returns, creating a stock market boom — nice if you own or issue stocks.
QE has also supplied the biggest banks with cheap money for profitable trading in the international financial markets, enabling them to recover from the 2008 crisis and continue paying big bonuses. QE has done quite well for members of the One Percent.
But what about stimulating the economy by encouraging investment with low interest money? That hasn’t happened. The cost of money is less the driver in business decisions, vs. market potential, the absolute level of commitment required, competitor dynamics, etc; funding cost is more a brake. Making money cheaper is not going to make anyone want to take risk if they think the fundamental outlook is poor.
Further, the overwhelming majority of banks no longer do small business lending. Character-based lending and the use of knowledge of the local market have gone out the window. The easy credit path to recovery went with it.
QE has only further entrenched the too-big-to-lend banks. We can’t effectively stimulate the economy unless we address the core problem: inequality.
Ed. Notes: Some people seem more concerned about the health of the economy than they do about the wellbeing of human beings, those whom the economy is supposed to serve — a misplaced emphasis. Banks would serve entrepreneurs if government would quit serving banks. The role of government should not be to interfere in the economy on behalf of any special interest by taxing and spending according to their faulty analyses. All government need do is defend rights and make sure that socially-generated values — the values of land, resources, and privileges like banking charters — are recovered and shared. Charge full-annual value for deeds to land and charters to banks, then disburse that raised revenue to the citizenry. With that extra income, people won’t have to borrow so much and the economy can take care of itself.