How many times have we heard either politicians, talking heads, or CEOs say, "we need to get credit moving again"?
As I have written about before the accepted philosophy has been that once we fixed the banking system and gave the banks enough capital, or guaranteed enough of their loans, or when we removed the toxic assets (all at the cost of the tax payer of course), that the banks will start lending again, the economy will turn around, and as Clark Griswold said in Vacation, we'll all be whistlin' Zip-a-dee-do-dah out of our you know whats as we skipped to work each day.
Well, we have done all of that. We have given the banks nearly $700 billion worth of TARP money. We have guaranteed another approximately $500 billion of their loans. And we are going to be on the hook for what could be another $1 trillion in toxic asset guarantees with the PPIP.
And yet despite all of this, I read today on CNBC a report put out by the AP that says, "A larger share of banks has made it more difficult for people to obtain home mortgages over the last three months even as demand has grown, the Federal Reserve reported Monday."
Specifically, according to the AP, "The Fed's new quarterly survey found that about 50 percent of U.S. banks tightened their lending standards on prime mortgages, up from about 45 percent in the survey issued in early February." And, "nearly 60 percent of banks said they tightened standards on credit card loans over the last three months".
I'm not advocating for banks to loosen their standards, my point is that we need to stop this charade that the banks are going to fix the economy, it simply is not true.
What this means is that regardless of how much money we give the banks, no matter how much the tax-payer pays for their indiscretions, credit will not return to "normal" until the housing market and economy get stability. In other words, Washington's philosophy about a top-down approach to fixing the housing market and economy is a fraud.
And it is all the more reason why a real housing stimulus that provides incentives for Americans to invest in real estate is the most cost effective method to bringing price stability to the housing market.