Tuesday, January 20, 2009

Credit Expansion Take 2

I like that comparison of a creditless society....what would someone pay for my house if no loans were available? Similarly, I agree with the comment by Mr. G that the government should have stabilized the consumer instead of the bank, but it's is hard to leverage the stabilizing dollars as it's been done with the banks. I am also struggling to imagine an economy with a huge pile of debt and non-performing loans that are (all of the sudden) nationalized by a government sponsored aggregator bank. What then? That is a massive opening of balance sheet considering that the state sponsored bank will likely be leveraged to the hilt, but unfortunately not in the likes of Lehman Bros. What then? Credit floods the markets for home buyers, new retailers, consumers, and auto loans? Would you be the first to grab that falling knife? No. I'm hopeful that the bank balance sheet forgiveness translates into a new era of financing meaningful capital endeavors. Alternative energy, tech development, Nationwide Wi-Max, brownfield development, more effective air travel, national security, heath improvements, public transportation systems that are worth a shit, trade improvements, trade partner regulations that promote well being, etc. It kind of sucks to see that a "quarter century" of credit expansion has been spent on inflated home improvement and overpriced German sports cars. We've overpriced assets that fundamentally don't have long lasting value. You would think that the nation's bankers would be smarter than squandering mass credit on non-performing assets. But, they are about to get a second chance. I hope the strings attached this time force the money to be spent on truly valuable assets.