So the Federal Reserve has decided to donate yet another $800 billion to U.S. banks in a move dubbed “quantitative easing.” Bloomberg News calls it Spitting in the Wind. I call it madness. Throwing money at problems never worked for social problems and is unlikely to work for liquidity problems. The Fed can “urge” banks to lend all it wants, but so long as fear is the ultimate driver and lenders are able to hang onto this money, or use it for M&A deals, little is going to change. These guys are fumbling around in the dark. They’re lurching from one bonehead move to another, while doing everything wrong when the issue is confidence, not fundamentals.
Why not try letting some of these institutions fail, since depositors are insured, and let stockholders — not taxpayers — take the hit? Nah, that might be dubbed “socialism”!! What do you call what’s been happening already? As the Wall Street Journal observed, “in a year when many of the nation’s banks have effectively been nationalized by a Republican administration, “socialism” is very much in the eye of the beholder.” Will Obama Usher In a Socialist Economy? I don’t want to own CitiBank, AIG and Bear Sterns, let alone General Motors. Neither should you, and certainly not through our government.