Why banks won't loan $ to small business.

Beach Fanatic

Aug 31, '10 · 7:10 PM1,591

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"

?Keeping short-term rates low . . . is particularly helpful to the big banks like Bank of America (BAC) and JPMorgan (JPM). Their raw material is short-term money, which is effectively free right now. They can borrow at 0.25% or less, and then turn around and invest those funds in, say, a 5-year T-note at 2.50%, locking in an almost risk-free profit of 2.25%."

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?

Replies

SoWal Insider

Sep 2, '10 · 8:39 AM#27

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?

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

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

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?

Why don't Y'all just twirl a few times and continue your insult dancing with each other? :roll:

Banned

Sep 2, '10 · 12:46 PM#28

Why don't Y'all just twirl a few times and continue your insult dancing with each other? :roll:

That's a good idea. It is kind of entertaining and it looks like you're coming up with a screenplay!

SoWal Expert

Sep 2, '10 · 1:44 PM#29

And another informative thread bites the dust. :roll:

SoWal Insider

Sep 2, '10 · 1:47 PM#30

And another informative thread bites the dust. :roll:

There's the name of the Screenplay :lol:

Banned

Sep 2, '10 · 1:58 PM#31

I was very serious about Shelly's post. He posted a video that explained banking and how money is created. It was amazing. If anyone can find it, this thread could be revived.

Beach FanaticAuthor

Sep 2, '10 · 5:07 PM#32

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?

I think you are correct. This capital is only improving the Bank's bottom line, not being used to increase activity in the economy.

SoWal Insider

Sep 2, '10 · 6:10 PM#33

I think you are correct. This capital is only improving the Bank's bottom line, not being used to increase activity in the economy.

Well, the fed lends free money at a zero rate to the banks, the banks then buy treasury debt at a higher rate, and we basically pay the banks to hold it. We'd be paying them or the chinese, at least some of the interest on the debt is landing in the pockets of american employees. That's better than wiring it to Beijing.

Edited Sep 2, '10 · 6:12 PM