Poole, Paulson, Bernanke on Bailouts and Bank Failures By Mish

Saturday, March 01, 2008

Bernanke Does Not Understand The Problem

Banks have every reason to decrease lending. There is rampant overcapacity in housing, commercial real estate, and the service sector. In addition there is over-leverage in hedge funds and over concentration of bank loans tied to real estate.

Bernanke wants banks to lend more, but all that will do is increase losses. The man clearly does not understand what the basic problem is. Yes, banks should be raising capital, but not to increase lending. Banks need to raise capital in advance of the approaching tsunamis in commercial real estate and credit card writeoffs, and the continuing tsunami in residential housing, all of which are going to further impair bank balance sheets.


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