Hank Paulson, and now the British, are complaining that the bailout money available to the banks isn't being lent. So why not?
Well, it's not because banks are happy to sit on fat piles of cash while you and I look for work. And it's not, contrary to some conspiratorial emails I've gotten, because the bank want to own everything from the GM to your house.
Banks make money by lending. They don't make money by being in the real estate business, or the car business, or any other business other than lending. They want to be able to judge good managers of those businesses, but they neither have nor want the skills to run those businesses themselves.
So why aren't they lending? It's because they can't find anyone they want to lend to. They won't lend to other banks because they can't tell which banks are sound and which aren't. But most of their business comes from lending to businesses, and right now, it's almost impossible to tell which businesses have good stories and which don't.
I spoke which a friend of mine who invests money for a living. He's a value investor, and a good one, and his complaint was that every company had one of two stories: it wouldn't make it, or it had a great model for when the economy turned around. The valuation measures he uses - that most value investors use - aren't distinguishing between merely good companies and companies actually worth investing in.
It means that almost every company's story is now the macro story, the story of the larger economy, not its own. And it means that the market, the individual decisions that individual investors make about individual companies, is being driven by the uncertainty in that macro picture.
The sooner we let the market find a bottom, the sooner we let the economy adjust, the sooner those valuation measures will begin to make sense again, and the sooner we can start turning this thing around.
Or, Obama can take all that FDR talk seriously, and we can be having the same discussion 7 years from now.
Well, it's not because banks are happy to sit on fat piles of cash while you and I look for work. And it's not, contrary to some conspiratorial emails I've gotten, because the bank want to own everything from the GM to your house.
Banks make money by lending. They don't make money by being in the real estate business, or the car business, or any other business other than lending. They want to be able to judge good managers of those businesses, but they neither have nor want the skills to run those businesses themselves.
So why aren't they lending? It's because they can't find anyone they want to lend to. They won't lend to other banks because they can't tell which banks are sound and which aren't. But most of their business comes from lending to businesses, and right now, it's almost impossible to tell which businesses have good stories and which don't.
I spoke which a friend of mine who invests money for a living. He's a value investor, and a good one, and his complaint was that every company had one of two stories: it wouldn't make it, or it had a great model for when the economy turned around. The valuation measures he uses - that most value investors use - aren't distinguishing between merely good companies and companies actually worth investing in.
It means that almost every company's story is now the macro story, the story of the larger economy, not its own. And it means that the market, the individual decisions that individual investors make about individual companies, is being driven by the uncertainty in that macro picture.
The sooner we let the market find a bottom, the sooner we let the economy adjust, the sooner those valuation measures will begin to make sense again, and the sooner we can start turning this thing around.
Or, Obama can take all that FDR talk seriously, and we can be having the same discussion 7 years from now.
