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Why Bailing Out Banks Doesn't Work

by Shamus Cooke

Global Research, January 21, 2009

The New York Times recently posed an excellent question: “Why save banks if they won’t lend?” (January 19, 2009)

Before the first $350 billion “installment” of the bailout, we were told that the money was needed to “unfreeze” the credit markets, meaning that banks would again be willing to lend businesses the money they needed to continue doing business.

Despite hugely popular opposition, the bailout proceeded, and absolutely nothing changed.

The congressional “representatives” who passed the bailout bill acted shocked: instead of giving loans, the banks hoarded the money, bought other banks, and continued to pay the lavish salaries and bonuses to CEOs. Meanwhile, the economy continued to crumble.

The politicians couldn’t possibly be surprised by the lack of lending since they obediently put no conditions on the banks upon receiving the money.

Questions still remain: why won’t the banks lend? And what are we to do about it?

It must first be noted that banks are hoarding money because it allows them to stay solvent, i.e., avoid bankruptcy. During the housing boom, money was cheap and banks borrowed and lent far more than they should have. It wasn’t simply irresponsibility; it was the need to compete with other banks that were likewise making gigantic profits at the time.

Continue to read:
http://www.globalresearch.ca/index.php?context=va&aid=11942

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