I am tired and haven’t had a lot of good writing time today so I decided to write a short post related to yesterday’s post about banking, bailouts, and theft.  If you recall, the 700 billion dollar bailout was requested by the financial industry last fall.  It was presented to congress as a “do or die” scenario.   Either you give us this money or the entire world financial system will collapse.  The reasons given for needing the money revolved around losses due to subprime mortgage lending and the subsequent freezing of credit markets.  There was a lot of talk in the news about banks being afraid to lend money even to each other.  The talk was that interbank lending had ceased and banks had quit loaning money to basically anyone.  We heard it straight from Secretary of the Treasury Henry Paulson and head of the Federal Reserve Ben Bernanke.


The problem with this is that none this was even close to true. A report from the Minneapolis Federal Reserve Bank titled “Working Paper 666” states that “Figures 5A and 5B display data for interbank loans made by all U.S. commercial banks.

These Figures show that, at least in the aggregate, interbank lending is healthy. The second claim, that the volume of interbank lending has fallen sharply, is false, at least as of October 15.”   As far as lending to businesses and consumers the report states, “Figure 1B displays the same data from the beginning of 2008 onward. Bank credit consists of the aggregate amount of assets held by these banks excluding vault cash. As is clear from these Figures, bank credit has not declined during the Financial crisis. Indeed, bank credit appears to have risen relative to trend in the month of September. Figures 2A and 2B display analogous data for loans and leases made by U.S. commercial banks. Again, we see no evidence of any decline during the  Financial crisis. Figures 3A and 3B display data for commercial and industrial loans. Again, we see no evidence that the Financial crisis has affected lending to non-financial businesses. Figures 4A and 4B display data for consumer loans and show no evidence that the financial crisis has affected consumer lending.”


Again, why are we giving the financial industry our money?  Why aren’t we fixing infrastructure, investing in education, and providing health care with this money instead?