Magnifisyncopathological

Or, "One of the Coming Bank Compulsion's Happy Morons."

The steam is building. I worried here that there really aren't many steps left between the cumbersome regulatory structure in place now where private ownership is at least nominally the case...and the kind of deeply intrusive state compulsion that represents outright usurpation.

Felix Salmon says:

...any loans banks extend today have a good chance of being marked down tomorrow. They have huge exposures already, and are in the process of deleveraging: the new capital will help them bring their capital ratios up if they don't go ahead and lend it out.

...so, many banks have a strong and completely understandable reason to tone down lending...

Lending Treasury's funds, on the other hand, is a risky thing to do heading into what might well be the worst recession of the post-war era. Wallace anticipates real consumer spending falling by 10%, and homeownership rates falling by 4 percentage points; those kind of changes could devastate companies' abilities to repay their loans.

...so, many banks have another strong and completely understandable reason to reduce their lending...

Remember too that even a generous tier-1 capital ratio of 10% implies 10x leverage: a bank which receives $25 billion of new capital can use it to make $250 billion of new loans. You don't need very many of those loans to go bad before you start eroding your capital base even further.

...so, fractional reserve banking once again reveals itself the fraudulent and risky farce it has always been, providing a third strong and completely understandable reason for banks to cut back on lending...

America's banks -- and the world's, for that matter -- have had de facto unlimited access to very cheap Fed liquidity for many months now. That hasn't induced them to lend. Will this latest recapitalization do the trick? I'm far from convinced. And what's more, the demand for loans is drying up fast: do you really feel like buying a bigger house right now, or taking out a car loan? Well, businesses are in the same boat. In a recession, their ROI falls, so they borrow less.

...so, banks are not responding to extremely generous incentives to lend, we as consumers are tightening our belts and wishing to reduce our debt burden, and businesses are likely to grow more wary of taking on additional debt as the economy slows...all completely understandable and reasonable.

*teeth gritting*

So what the does Mr. Salmon want to see? FULL FUCKING STEAM AHEAD!

With less demand for money, and no real desire on the part of the banks to lend it out, I think it'll take more than hand-waving statements from the Treasury secretary to get the credit markets moving again. I do hope that Paulson is looking one step ahead here, and coming up with ways to compel the banks to lend -- even if they don't particularly want to.

All emphasis in the original.

The moral vacuity Mr. Salmon displays here is remarkable all on its own, but I rant too much about degenerates and thugs as it is. No, this is Example #1 of heart-stopping non sequiturs. Mr. Salmon lays out economic reality and then flat-out whistles past it.

He hopes bankers will be forced to ruin their businesses and threaten their customers' property. Actually, threaten taxpayers' property, since we're stuck with the damned FDIC. He explains multiple reasons why economic actors are doing what they are doing and then, without addressing those reasons, simply calls for a doubling-down of the very same bet that has been poisoning the game from the beginning. "The market doesn't need to be screwed up. Here is why the credit market is screwed up. I wish the government would point guns at people so they continue screwing the market up."

Then there's the minor issue of his Olympian presumption to know - and coerce - what's best for an entire industry.

I know it's easy to demand people be ordered around at the threat of police violence (that's what the state does). Damn near everyone else is doing it. But c'mon, man.

Via Andrew Sullivan, who - surprise surprise! - doesn't have the intellect or guts to see what's going on.