Will Congress push for Banks to make it even easier to loan?

[Montrose1100]

Watching PBS, I heard one of the reporters say that the Goverment might push for banks to lower standards for getting a loan, for consumers to enjoy all time low interest rates...

Wasn't the lowering of standards hurtful in the first place a few years ago because people simply could not pay it back? I know there is a number of reasons for this economic hullabaloo, but do you think (if pushed) that this will help, or make it worse?

[TJones]

Not likely, when they have to keep seeing that every bank or firm they give money too, goes and blows it on Super Bowl parties and pays out crazy bonuses with it. So, telling them to lower rates for money the banks don't have is kind of a catch 22.

[TheNiche]

Watching PBS, I heard one of the reporters say that the Goverment might push for banks to lower standards for getting a loan, for consumers to enjoy all time low interest rates...

Wasn't the lowering of standards hurtful in the first place a few years ago because people simply could not pay it back? I know there is a number of reasons for this economic hullabaloo, but do you think (if pushed) that this will help, or make it worse?

There still is a problem that there aren't enough banks lending, and it is rooted in that they aren't well-capitalized enough.

However, a simple mandate that they must lower their reserve requirement and lend would be irresponsible because banks are still struggling with solvency. If they are forced to lend more, many will become insolvent. Other banks, also struggling to comply with the mandate, won't have the ability to purchase and prop up the weak ones at the 11th hour, meaning that the insolvent ones would be more likely to go bankrupt...unless there were tremendous Federal subsidies to make such deals go through. So no, that doesn't do anybody any good.

I think that the best solution is to allow a higher rate of inflation simply by changing how the government finances its expenditures. It should lower the amount of debt that it is issuing and instead simply print money. It wouldn't be good for the owners of banks and other institutions that hold a lot of long-term fixed-income debt, but it would recapitalize them quickly as the economy became flush with new Dollars, allowing them to lend again. And we aren't the only struggling economy out there, so if we can inflate in concert with other nations, that would probably be ideal.

[crunchtastic]

If they did, Congress would be showing about as much problem-solving ability as the Federal Reserve.

Lowering interest rates hasn't fixed the fact that the banks are loaded with bad debt and short on cash, likewise lowering reserve requirements isn't going to entice them to lend. All these moves are designed to get consumers to spend, and they're not working. With every week that goes by with new layoffs annouced, consumers will just retrench further. Not only are consumers not taking on new debt, the rate at which they're paying off existing debt is ratcheting way down. Credit card debt is the next toxic bubble to burst.