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Why the Banks Aren't Lending

The banks aren't lending money, even with the stimulus.  Because they are broke.

Forget about using the stimulus and TARP money to make NEW loans. This money is going into the sinkhole of PAST (bad) loans. Meaning that ALL the major banks would be basically insolvent without the bailout money. Until the banks rebuild their balance sheets, there CAN'T BE any new lending (to speak of). Maybe some token, "propitiatory" loans.

In order for people to track balance sheets, we need to restore "mark to market" accounting. Yes, that would "bankrupt" most institutions that are now technically solvent. But since the government is backstopping them anyway, there would be little to lose.

That is, except our respect for bankers and our remaining tolerance for their outsized bonuses. We need to know just how low they have fallen. What we would gain is the truth about our financial system, on our way to fiscal health.

At a luncheon meeting  Bear Stearns was holding for investors, John Paulson hastened the company's collapse with one simple question: How many of your assets are Level 2 and Level 3 (non mark to market)? The host wouldn't answer. Everyone else present understood the meaning of this exchange, and reduced their Bear Stearns holdings as quickly as possible.