Making the banks work for the people

The banks are about to get a second infusion of money to make them do what they were supposed to do with the first infusion: Loan money. The first time, instead of loaning money, they kept the cash to make their financial ratios look good, or used it to buy other banks. This time Congress is trying to figure out rules that will induce or force them to do what they should have done initially.

On KPBS Radio today, heard the answer. Although I can’t find it on his website, it was reported on the radio that Benjamin Barber, Distinguished Senior Fellow at Demos, a public policy research and advocacy organization, proposes that Congress provide the banks not money, but vouchers which could be redeemed only as a part of a loan transaction. There would be no way for the banks to hang onto it as cash, or to use for some other kind of transaction. Barber suggests a three to six month expiration period for the vouchers, “Use it or lose it”. I see no problem with letting the vouchers be valid up to a year.

This is the banking version of the debit card proposal for the taxpayers that I proposed in an earlier blog. I think both deserve serious consideration. Both proposals have the advantage of getting the money where it is needed and getting it there fast.

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2 Responses to Making the banks work for the people

  1. jfistere says:

    You are correct. One way of interpreting the situation is that credit is behaving like a pendulum. During the real estate bubble, mortgage credit was too easy, and now it is too tight. We have to find a way to pull the pendulum to the center, and damp the oscillation at that point. Waiting for the pendulum to settle down of its own accord may take too long.

  2. Jonathan Simeone says:

    I agree that we need to get the banks lending again, but there is a risk in that. One of the big reasons we are in such a big mess is that almost everyone was buying way too much on credit. So, I think we need to get lending going again, but we need to be really sure that the people and businesses that get loans really are good credit risks. America must stop being such a credit-based society. Unfortunately, that will mean that many Americans will have to learn to live with less.

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