Banks are not using the Fed bailout money to ease the tight credit market.  They are using it to shore up their balance sheets and consider acquisitions of weaker banks who were perhaps not able to get as much bailout money.  It is simply making the concept of “too big to fail” even worse since in this scenario the big will get bigger.
To the matter of “easing the tight credit market”….I have a comment:  How can more of the disease be the cure? If overly lax lending and inability to accurately assess the risk of debt led to the crisis, how can more debt and “easing the credit market” (aka more lending) fix it?  Its just doing more of the same thing….you can package it as a rescue if you like…it doesn’t change the fact that you can’t lend your way out of a crisis that was created by lending.
This is how capitalism works:  Bad investments fail, the capital is liquidated, and re-allocated to more fit industries and companies.  It is so two-faced to talk about the virtues of the free market with one breath while preventing it from working with another.
Why can’t banks fail?  Because banks issue money.  In a fractional banking system when banks lend, they create money.  It goes back to a crisis of faith in our fiat money.  If the issuers of the money fail….then the money itself might fail.  If the money fails, the government fails.  That’s why its tricky to let banks fail.  It is a matter of national self-interest (besides the army of lobbyist I’m sure the banking industry has).
What about General Motors?  Is the government going to let them fail?  They’ve been hemorrhaging money for years and keep asking for bailouts. The answer is NO.  The government may allow some small part of the auto industry to fail, but in general, they will not allow the inefficient US automakers to fold.  It is a matter of national self-interest.  The government wants cars manufactured in the US because in case of a war the auto industry might need to be conscripted to make weapons (as was done in WWI and WWII) or ramped up to fill a void in the absence of car imports if we’re at war with say China (where presumably Japanese cars could no longer be imported).  It is why the government continues to subsidize the farm industry in the US (when it clearly can’t compete with cheap imports from 3rd world countries).  If we are a war, we need to be able to produce our own food in the absence of imports.
I also want to comment on the red and blue states and the election results.  A map of the states that voted Republican also fairly closely matches a map of states with the worst poverty and most income inequality…exactly the issues the Democrats try to deal with.  Why is it that those who stand to gain most from the Democrats being in office vote against them?  It doesn’t make sense.  The Republican states are also generally less educated, with less health care coverage, and lose more jobs to free-trade agreements.  The Democrats also try to deal with those issues.  I truly don’t understand.  Is gay marriage, handguns, and abortion policy really THAT important to the poor?
Finally, I want to re-comment on Economics, the dismal science.  It has been shown even more dismal than imagined over the past few months.  Why is it, with all the economists in the world, that so few predicted the current crisis?  If economics is a science, it should’ve done better.  If it is a science then it should have something more prescriptive to say in terms of actions to take to remedy the crisis.  Instead Bernake and Paulson were able to blank check the banking industry…allowing them to do whatever they want with essentially as much money as they want….and call it the “best” plan of action to avert the crisis.  “Best” based on what?  Economics.  Now that is dismal.
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