NY Times 10.18 Paul Krugman, The Banks Are Not Allright

I am most impressed by Dr. Paul Krugman's most recent article "The Banks Are Not Alright," in today's, October 18, New York Times. In my opinion, it's a must read for Americans wanting a serious analysis of the "recovery."

Most definitions of a bank are similar to the following," An establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial services to its customers." Making loans to individual consumers, small businesses, corporations, is a vital component of the role and function of any bank. Perhaps the nexus of consumer, small business and economic recovery is the open lending role of banking.

Dr. Krugman is giving the nation an alert, that many of the nation's banks are not in great functional health. In highlighting the measured approach to Wall Street lenders by Lawrence Summers resulting in little if any meaningful reform to stimulate lending, Krugman is correct in challenging any current economic recovery. Simply stated the author makes the observation that banks remain reluctant to lend. Individual consumers, small businesses, in short even main street itself is not on the receiving end of loans needed to help reconstitute the American economy.

Tight credit, is identified by Krugman as an unfortunate roadblock to the needed strong recovery. The part of banking that really matters most-lending, is not being reset. Obviously, in spite of federal government subsidies to banks, the lending portion of the bank's role is practically non existent.

During the Great Depression, President Hoover often emphasized the growth in U.S. production, resulting in more goods and consumer products. Production was at an all time high, yet employment remained at an all time low--does that sound familiar?. A plethora of goods, a miniscule amount of dollars available to the average consumer for making a purchase. Reluctant banks, unwilling to take a chance on consumers and small businesses which might harm their bottom line.

At a time when job creation in this nation is basically proceeding at a snail's pace, when job restoration is practically non existent failing to show up on the administration's radar screen, most banks are yet to free up their lending. Some lending institutions are buying other financial firms, investing once again in risky products, apparently feeling a comfort level with the administration and Lawrence Summer's detachment. The strategy currently in place at the White House and the Treasury must be changed if recovery is to take root.

As Abraham Lincoln so vividly stated, when the real threat comes to the nation it will come from within not from foreign shores. A house divided against itself can no longer survive. Healthcare reform, climate bills, even the appointment of Czars, which have fostered division, will not stimulate the recovery America needs. Unemployment, home foreclosures, homelessness, hopelessness, and poverty are all growing in epidemic proportions, reported daily in our newspapers and media.

The banks must lend now, for in so doing they will help lead a national economic recovery and receive gratitude from the voters. For banks to continue the present perilous course, will lengthen and further complicate national recovery from this current depression.