This morning I sat back and shivered. 15 degrees is fairly cold and for reasons I as of yet do not fully understand I have had a really hard time getting warm this Winter anyway. I was so cold the other day on the Navajo Reservation that I had to think back a very, very long time to come up with another time wherein I felt so cold. It is nothing of consequence, really. The chill that the worldwide financial contagion has put on credit markets is so permanent in appearance that I scarcely can imagine any meaningful thaw within the next 120 days. The expose’ of a small Michigan bank, Independent, in the New York Times today is instructive. I will turn to that presently.
It is an elementary fact that the United States economy has been and remains utterly dependent upon the flow of credit. American economic activity is invariably a function of debt managment, at every locus of each sector of the economy. States are striving to meet red ink demands, reportedly now turning to gasoline taxation again, while the American consumer has all attention diverted away to other things more pressing than the current price of car and truck fuel. When it rises again–and it will rise again, markedly–it may take a brief bit of catching up, but one full tank will remove the blinders of what has been achieved when nobody was looking. The public will not be amused. I howl at it, really, because any soul with half a pie left between the ears could see it in an instant–this thing is heading down, down, down, and there is no conceivable way to either stop that downward trend or even to meaningfully prepare for it. All you can do is just hold on.
Independent Bank in Michigan got some $75 Million and instead of loaning the money out to grease the gears–what was intended by the bailout in the first place–its officers wrote a check near the same amount back to the Federal Reserve. More … –Ben Bernanke & Co. just took the money and stuffed it back into the FED mattress. It did nothing of consequence for the economy. If someone wrote me a check for over $70 Million I would know about it. Yet Mr. Bernanke just deposited the check and no questions like–hey, wait a minute, we want this money loaned out? People, it is safe to say at this point that Washington truly has no idea whatever how to prevent what is coming and the rest is mere window dressing. See … “In Michigan, Bank Lend Little Of Its Bailout Funds,” NY Times.com.
“As of Tuesday, 257 financial institutions in 42 states had received $192 billion in capital injections from the Treasury’s Troubled Asset Relief Program, or TARP, out of $250 billion set aside for this purpose. Seven giant banks — like JPMorgan Chase and Citigroup — have received more than 62 percent of the total so far, and have gotten most of the attention.”
AND …
“With no surge in lending taking place right away — and the bank very much looking for a way to improve its own balance sheet — Independent took the $72 million check that arrived from Treasury in mid-December and immediately transferred it to the Federal Reserve to pay down short-term loans it had taken out.”
“This month, the bank is planning to leverage that bailout money to buy about $160 million in mortgage-backed securities from institutions like Fannie Mae, an investment that it hopes will produce enough interest income to pay the dividend it owes the federal government. Again, this will bring little immediate benefit to Michigan businesses and residents. In essence, the $72 million has been stuffed into Treasury’s own mattress.”
Banks are refusing to lend because they believe that the business cycle is not finished sifting out between winners and losers. Yet investment in distressed assets over at Fannie Mae over investment in the very local community Independent purports to serve is ample notice that things are going to get much worse indeed.
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