Comments on: TARP, the Consumer-Driven Version?

By: Neil

Neil — Wed, 14 Jan 2009 11:23:40 +0000

The German prime minister’s plan consists mainly of Keynesian measures that should let money trickle up: tax cuts and insurance premiums cuts and raised child support are all part of it. There will also be a car wrecking premium of 2500 euro for cars older than 9 years which is supposed to help the famous German car industry…

By: Hugh

Hugh — Wed, 14 Jan 2009 05:10:20 +0000

Thanks for the link. There is indeed a liquidity trap and it has been around since well before Fed rates hit zero. I think the article mistakes the cause for the effect. Rates went to zero because no one was lending. It wasn’t that rates went to zero and then banks stopped lending. Also banks could do consumer lending at non-zero rates and make a profit but they aren’t. The reason is again their insolvency brought on by their toxic assets. It’s all a shell game really. Banks are holding assets with a face value of X dollars. If they had to mark them to market, they would be worth 1/4 X dollars. If they had to declare this, they would have to admit they are broke so they don’t. I have long favored nationalizing banks, forcing them to restart regular lending, refinance troubled mortgages with a 40% cramdown which would bring them to pre-bubble levels. I would have them make a public accounting of their troubled assets at the cramdown level or at .6 X dollars. Some banks would be so insolvent they would just have to be closed. Others, most in fact, would be re-capitalized through government loans and eventually reprivatized. During this process banks that were too large to fail could be split up. Their size could be further reduced by re-imposing Glass-Steagall and forcing them to sell off their investment and insurance divisions.

It just occurred to me I should put this in an oxdown diary.

By: Kassandra

Kassandra — Wed, 14 Jan 2009 00:52:21 +0000

This may answer your question; there’s literally nothing in it for them to loan……..to anybody. It’s the Fed’s doing.

Federal Reserve Torpedoes Obama’s
Stimulus Rally

By: Hugh

Hugh — Tue, 13 Jan 2009 22:17:29 +0000

The $350 billion can be expected to have an effect. I mean $350 billion is still a lot of money. But it doesn’t get to the reason why financial institutions are so unwilling to lend. OTOH they already have money they could but aren’t lending. But they are holding on to it because this cash is offset by the toxic assets that render most of them insolvent. While many of them have shifted these crap assets to the Federal Reserve, at some point they will have to take them back. So I don’t see credit being freed up that much.

By: Knut

Knut — Tue, 13 Jan 2009 22:14:49 +0000

I know we have to get spending back up again to avert the worst, but structurally the United States has too much consumer spending. Our economy has been bent out of shape to accommodate it, with the consequence that a huge proportion (ok, I don’t actually know what it is) goes into cosmetic changes in automobiles, gasoline to maintain suburban lifestyles, a bewildering aray of ever renewed electronic gadgets, meals out, and God knows what else. The proportion spent on what we used to consider the necessaries — food, unpretentious lodging, and clothing is small, but that’s the base. What we don’t have in this country is the kind of social spending that characterises the advanced European economies — spending that supports not only the consumption of old people, which we actually do fairly well, but more importantly the consumption and human capital investments of young ones. Simply ginning up spending again without changing the basic allocation is going to cause further devastation to our public infra-structure.

Not to mention that the consumption has fueled our huge trade deficit with the rest of the world. Something has got to give. The most obvious and least painful give is consumption of the middle and upper middle classes. It’s a hard truth, but the poor have already given their bit.

By: rosalind

rosalind — Tue, 13 Jan 2009 22:07:25 +0000

(even when i’m semi on-topic, i still screw it up)

By: dakine01

dakine01 — Tue, 13 Jan 2009 22:00:07 +0000

FWIW, Daimler sold Chrysler to Cerberus in May 2007.

By: rosalind

rosalind — Tue, 13 Jan 2009 21:54:46 +0000

well if daimler/chrysler’s credit crunch is easing, i’d certainly take another look at the SmartCar, that baby can scoot!

(video footage of l.a.’s latest freeway pursuit with the SmartCar hitting 90mph)

By: Blub

Blub — Tue, 13 Jan 2009 21:48:12 +0000

when this crisis is all over, can we please take the first $350 billion back? taxpayers get the finco’s dividends, forever, or something?

By: foothillsmike

foothillsmike — Tue, 13 Jan 2009 21:34:20 +0000

It would be interesting to see if these purchases were driven by individuals or fleet sales. Is this large companies, states, municipalities etc. doing annual buying?
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