Why banks won't loan $ to small business.

I've been complaining about the lack of interest in the Federal Government in helping small business (where 80+% of new jobs are created.)

I wondered why with TARP funds and low interest rates why bank lending has continued to contract. Why won't they loan money?

The answer, I found out today, is that we've built a system where banks can make money without making loans.

From Ellen Brown at Counterpunch "How Banks Make Money on Low-Interest Loans"



That's right, banks can borrow money from the government, basically for free (<= .0.25%) and then, instead of taking on risk and loaning those funds out, they invest them in T-bills and earn 10-20x the interest rate they are paying.

Guess who has invested more in our politcians....small business or bankers?

Talk about a ponzi scheme.

What the author of that article failed to acknowledge was that, just like anyone else who buys T-bills, the Banks are subject to inflationary pressures. Also, she doesn't address the issue of why a Bank would buy T-Bills and earn 2.25% vs. making a loan and earning 4.5% or more. If the applicants were so credit worthy, it would be a no brainer. No?

In 2009, the larger Banks had over 4 trillion to lend, however, there was no demand. Bankruptcy filings were up 32% and many people were also saving money vs. spending it.

What the government needs to do is loosen up the standards and find a happy balance. We all know what happened when the underwriting guidelines were much more loosey goosey.

I'm not saying that small business is not feeling a credit crunch. People who have excellent credit, new businesses with a good business plan, and existing businesses with some collateral looking to expand should have better access to credit; but the author of that article is making it sound like the government is colluding with Banks to keep small businesses in the crapper.

This economic downturn has been so long (money isn't flowing in the markets with consumers) that I believe small business owners of a miniscule amount of affluence have experienced some credit dings, hampering their ability to obtain loans from big banks. Their financials are weaker than normal, showing less cash flow, etc. They are probably borrowing from family and other private money resources. I don't think we should go back the loosey goosey underwriting guidelines, but there does need to be some common sense underwriting. If someone had stellar credit until 2009 or 2010, one can surmise why the credit score isn't as high as it once was.
I think there are more heads to fly with this issue.

I've been complaining about the lack of interest in the Federal Government in helping small business (where 80+% of new jobs are created.)

I wondered why with TARP funds and low interest rates why bank lending has continued to contract. Why won't they loan money?

The answer, I found out today, is that we've built a system where banks can make money without making loans.

From Ellen Brown at Counterpunch "How Banks Make Money on Low-Interest Loans"



That's right, banks can borrow money from the government, basically for free (<= .0.25%) and then, instead of taking on risk and loaning those funds out, they invest them in T-bills and earn 10-20x the interest rate they are paying.

Guess who has invested more in our politcians....small business or bankers?

Makes me question more about Alex Sink (former state president for NationsBank (bank of america) being potential governor for Florida.

What the author of that article failed to acknowledge was that, just like anyone else who buys T-bills, the Banks are subject to inflationary pressures. Also, she doesn't address the issue of why a Bank would buy T-Bills and earn 2.25% vs. making a loan and earning 4.5% or more. If the applicants were so credit worthy, it would be a no brainer. No?

In 2009, the larger Banks had over 4 trillion to lend, however, there was no demand. Bankruptcy filings were up 32% and many people were also saving money vs. spending it.

What the government needs to do is loosen up the standards and find a happy balance. We all know what happened when the underwriting guidelines were much more loosey goosey.

I'm not saying that small business is not feeling a credit crunch. People who have excellent credit, new businesses with a good business plan, and existing businesses with some collateral looking to expand should have better access to credit; but the author of that article is making it sound like the government is colluding with Banks to keep small businesses in the crapper.

Unintended consequences maybe, but really, there are very few low risk small business plans and few small businesses looking to expand, so the t-bill option is obvious. There's no risk of inflation at this point either.

It isn't just that there is no demand - the banks have overreacted and are being ridiculous. There are still people out there w/ money and jobs who want loans and mortgages. Many of my peers can actually afford homes and property now - and the banks act like they are serial killers.

If they had a mere fraction of their current standards years ago we wouldn't BE in this current mess. (An opinion I have shared with lenders sitting across the desk from me.)

Not only are they hurting small businesses, but many people are just paying cash out of frustration or finding alternate financing.

I do think the banks should not be allowed to buy t-bills or whatever w/ money they are supposed to be lending.

It isn't just that there is no demand - the banks have overreacted and are being ridiculous. There are still people out there w/ money and jobs who want loans and mortgages. Many of my peers can actually afford homes and property now - and the banks act like they are serial killers.

If they had a mere fraction of their current standards years ago we wouldn't BE in this current mess. (An opinion I have shared with lenders sitting across the desk from me.)

Not only are they hurting small businesses, but many people are just paying cash out of frustration or finding alternate financing.

I do think the banks should not be allowed to buy t-bills or whatever w/ money they are supposed to be lending.

If it is their capital I don't care what they do with it. But to borrow money from the government ( or even worse take handouts from the government) and then lend that money back to the government at a higher rate is disgraceful and should be a felony.

Wouldn't a loan be a liability on a balance sheet, while a t-bil would be counted an asset?

Unintended consequences maybe, but really, there are very few low risk small business plans and few small businesses looking to expand, so the t-bill option is obvious. There's no risk of inflation at this point either.

Right now risk is low, however, there is always the perception of inflation and risk of the market getting spooked for any reason, ie; Fed's not withdrawing stimulus fast enough, unemployment figures.

If it is their capital I don't care what they do with it. But to borrow money from the government ( or even worse take handouts from the government) and then lend that money back to the government at a higher rate is disgraceful and should be a felony.

I know it sounds evil on the face of it, however, who else is buying Treasuries?? Certainly not China and Japan like they used to and neither is Joe the Plumber. Rates have no where to go but up and the value of their bonds will go down; so in essence, if they cash them in at some, we, being the US, are paying less back.

It's a liability on one ledger, but if a bank lends money, it's an asset (collateralized) or A/R on the balance sheet. Rates are going to go up....we just don't know when. I'm surprised there isn't more money between the member banks changing hands for the overnight rate, but we just aren't in that climate right now.

Since it's stimulus money, I'd like to see some legislation enacted that it's earmarked for lending only.....not for investing in the safest instrument in the World. The banks might then get their hands dirty trying to help small to medium sized businesses.

Question - if banks get money from the government and then use it to buy t-bills (instead of lending it etc.) isn't that a deficit increasing double whammy?

I thought that since the government didn't have that money in the first place they had to sell treasury bills to "raise it".

Once again, I am trying to find a phrase to describe the process (one that I could say in front of Mama Scooterbug w/o getting smacked) and am failing.

Is anyone (besides the banks who caused this mess) benefiting from this arrangement? It sounds like we are racking up more debt so these banks can make a profit while they screw over the taxpayers.

Question - if banks get money from the government and then use it to buy t-bills (instead of lending it etc.) isn't that a deficit increasing double whammy?

I thought that since the government didn't have that money in the first place they had to sell treasury bills to "raise it".

Once again, I am trying to find a phrase to describe the process (one that I could say in front of Mama Scooterbug w/o getting smacked) and am failing.
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How about "Money in Perpetually Bad Motion"?

Question - if banks get money from the government and then use it to buy t-bills (instead of lending it etc.) isn't that a deficit increasing double whammy?

I thought that since the government didn't have that money in the first place they had to sell treasury bills to "raise it".

Once again, I am trying to find a phrase to describe the process (one that I could say in front of Mama Scooterbug w/o getting smacked) and am failing.

Is anyone (besides the banks who caused this mess) benefiting from this arrangement? It sounds like we are racking up more debt so these banks can make a profit while they screw over the taxpayers.

The FED 'prints' the money the banks borrow. Somebody would buy the tbils, it doesn't have to be these banks that borrow. Open up your wallet and take a look at a dollar bill, on the upper left you'll see "federal reserve note". It's backed by the federal government "on faith".

Where did I get the t-bill sales as a way for us to "borrow" money?

I thought it still had to come from somewhere - or I am too logical to properly understand this cluster?

I thought "faith" equaled "people willing to buy treasury bills."

Where did I get the t-bill sales as a way for us to "borrow" money?

I thought it still had to come from somewhere - or I am too logical to properly understand this cluster?

I thought "faith" equaled "people willing to buy treasury bills."

T-bills are debt, no more, no less. You are emminently logical but discussing the most illogical organization on earth: the US government.

What will happen when people no longer have "faith?" I think they call that hyper-inflation.

And, that faith is backed by the United States Taxpayer at the whim of the taxing authority, which is why Treasuries are the safest investments in the World.

I think the financial sector, government, and health insurance are in a 3 way tie for most convoluted, illogical, and outright dumbarse way to do things. :roll:

But back to the original question - aren't we technically ending up worse off because the banks are using "debt money" to buy t-bills instead of lending it?

Where did I get the t-bill sales as a way for us to "borrow" money?

I thought it still had to come from somewhere - or I am too logical to properly understand this cluster?

I thought "faith" equaled "people willing to buy treasury bills."

The U.S. Treasury manages the finances of the federal government. Income, expense, and issuing debt. That's it.

The FED is charged with managing the money supply, it can create and destroy money at will.

When the FED lends to a bank, they boot up their computer, open the reserve account of the bank (all banks have to have them) clickity click, tappity tap, APPLY. It's done, money is created. When the bank pays the FED back, the same thing happens in reverse, the bank transfers funds into their reserve account, and the FED deletes it.

Faith in our currency is, well, exactly that. We use to back our money with gold, but we gave up doing that in the 70s. Now it's just based on faith that it'll be worth something. We can break that faith if we want to, most notably, by printing more money, decreasing the buying power of the dollar.

Sometimes when the FED wants to stave off deflation, it will monetize treasury debt as a way of pumping cash into the system. The FED will buy treasury issued t-bils, flushing the monetary system with cash. (It's doing this right now.) When the FED wants to fight inflation, they suck money back in and destroy it.

Shelly once posted a great video on how money is created but I can't find it. If I remember the video talks about how our economy relies on increasing consumption to grow. Real estate is the tangible item that backs up the shell game. I think it suggests replacing the system with an infrastructure based economy. Some would call that big gov socialism.

Shelly once posted a great video on how money is created but I can't find it. If I remember the video talks about how our economy relies on increasing consumption to grow. Real estate is the tangible item that backs up the shell game. I think it suggests replacing the system with an infrastructure based economy. Some would call that big gov socialism.

For the last fifteen or twenty years, it generated over consumption. We still produce goods and offer services. If we didn't continue to do that, a grand scheme like yours would run out of funding in short order.

For the last fifteen or twenty years, it generated over consumption. We still produce goods and offer services. If we didn't continue to do that, a grand scheme like yours would run out of funding in short order.

Like mine?? Wtf are you talking about 30acustomer?

Like mine?? Wtf are you talking about 30acustomer?

Sorry, I was (possibly incorrectly) inferring from previous posts. You're not a Marxist?

Sorry, I was (possibly incorrectly) inferring from previous posts. You're not a Marxist?

30acustomer, I think you need a good brain enema.

30acustomer, I think you need a good brain enema.

You forgot the "I don't know" before the cheap insult.

You forgot the "I don't know" before the cheap insult.

Sorry, I was (possibly incorrectly) inferring from previous posts. You're not a rectal-cranial inversionist?