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That's how it started -- lack of counterparty confidence to lend, which is why Tarp was a good idea at the time.  But we're way beyond that now. Personal savings has skyrocketed everywhere, which means that individuals all over the world are in fear of losing their jobs, and many of them will, so they rationally reduce spending.  Same for businesses of all kinds except repo men. Fixing banks won't help until people can be assured of income stability.  

Looseninig lending would go a long way toward helping that, but it is not a sufficient, or even necessary, condition any longer.  Also, except for economists, political authorities of all stripes are calling for more conservative lending, as well as most people commenting here.  That means high capital ratios like we have now, and high lending criteria even under government management.  Only a re-establishment of markets for money and credit through increasing confidence in future income streams can solve the crisis at this late stage.

by santiago on Thu Jan 22nd, 2009 at 02:28:27 PM EST
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