2008-11-28 — fallstreet.com
The recapitalization efforts to date are, in fact, necessary if you conclude that financial institutions are so connected that any large failure threatens the entire financial system. However, as policy makers implore institutions to lend more freely there are contradictory policy goals afoot. To be sure, on the one Bernanke and company want to slap the wrists of the hooligans that allowed subprime to proliferate and ensure that more bad loans are not made during today’s bad times, while on the other they hope that banks undertake super aggressive lending regimes to help boost the fledging U.S. economy. With this in mind, the question begs: are banks really ‘hoarding’ capital or are they simply reverting to rational policies after many years of ‘reckless’ lending? This is a question few policy makers dare ask.
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