bostonbubble.com

[barrys]

would have you believe.

http://businomics.typepad.com/

Bill Conerly's economics blog:

he critical issue is whether main street businesses that rely on credit to fund their operations will be cut off, suddenly, from credit. A sudden cut-off of credit to otherwise healthy companies would trigger a severe recession, but I think we have the tools in place now to prevent that.

Bank credit depends on two key issues: do the banks have the raw materials for loans, and do the banks have the capital necessary to make loans.

If depositors remove money from banks, there's a raw material problem. However, the Federal Reserve has the authority to lend to banks as needed to maintain credit flows. They also have the authority to extend their credit outside of traditional commercial banking. I am convinced that the Fed will make the raw material available to banks as needed.

The second issue is capital capacity. Bank shareholders have to have some skin in the game. If the value of the bank's assets falls, then the capital of the bank falls. At some point, capital might become insufficient for the size of the bank. The bank then must either sell more stock, or shrink its assets, such as by refusing to make new loans.

What's the condition of banks? As of the end of last quarter, commercial banks and thrifts had core (Tier 1) capital equal to 7.89% of their assets. Is this a lot? It's down from a year prior, but here's the requirement: to be "well capitalized" a bank needs six percent. So the industry as a whole was well above standards. The FDIC Quarterly Banking Profile reports that over 99% of the assets of banks and thrifts were in well capitalized banks. Banks that are under six percent but over four percent are called "adequately capitalized," but despite the title operate under some restrictions. With less than four percent capital banks need a plan to pull themselves up to adequate capitalization.

We don't know how the summer's market turmoil is hitting banks. We'll certainly have a number of banks drop in capital when the Sept. 30 report is published. However, I think we'll still have adequate capitalization overall.

Here's what bank regulators need to do. Cut some slack on institutions that have low capital because of mark-to-market requirements in thin markets. Encourage poorly-capitalized banks to participate loans out to well-capitalized banks. (This means Bank A lends a company $100, then passes a portion of the IOU over to Bank B.)

With aggressive Fed lending to banks that have lost deposits, along with reasonable judgment by regulators, credit can continue flowing to healthy banks and consumers. That means the real side of the economy, spending, production and income, do not go into a worse downturn.

[Guest]

And if you are thinking that Wall Street, Paulson and Bernake have the only view-- here are 192 economist who disagree...

http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

[john p]

The leadership that is lacking is that we're scapegoating Wall Street and not holding some of the people on "Main Street" responsible.

I love those little emotion sensors that you see during the debates. Politicans know that if they use the "CEO's" on Wall Street line the electorate will get pumped up. When people square off on you and say "What about you on Main Street?, you were buying fancy cars, big scree T.V.'s with HELOC's (using your home as an ATM) and some getting in way over your heads as well). People don't want to hear that they are part of the problem, they want to behave like children and blame the adults.

Additionally, it is funny to see how people fall lock step in line with "expert elites". It's funny how the only people allowed in the discussion were the "leadership of the parties" and when everyone else was left in the dark about the details, we were all supposed to fall in line without a full understanding of the situation and details of the bailout. The "values" of the House Republicans are smaller government, less government interaction. Given the fact that it was government interaction through the Community Reinvestment Act and Fannie Mae and Freddie Mac that caused a great deal of the problem, what compelling case was put forth to use the same means that caused the problem to cure it?

[Guest]

Main street-- like the flock mentality ate everything given to them-- it is a cultural issue in which 16 year old kids get BMWs... No accountability and instant gratification...

That being said-- the number of wall street and washington screw jobs on the american people far out weighs the damage the main street moron have caused.. barney Frank (my God Dam Congressman, shoot me because a landscaper with no finances is running against him) set up fannie and freddy to fail). Wall street did not care what they were packaging, as long as someone was buying.

So Screw Wall Street-- they are the ones who will benefit most-- Screw the bail-out and focus on recapitalizing banks to ensure credit flows-- And screw congress and washington for this blatant fear mongering-- Every one of them knew this was coming-- and they did shit.

As for main street-- these guys are still screwed-- lose there house,(thanks to GW, hard to qualify for bankruptcy), lots lose their jobs, etc... regardless they are getting punished-- the pain need to travel up the chain, because if those culpable had not made these toxic instruments in the first place, they would not have had the option...

[john p]

http://www.lewrockwell.com/dilorenzo/dilorenzo125.html