We went through this after the S&L thing 20 years ago here in the SW. Banks are always the most conservative source of capital. After the S&L, they went from loaning you all the money you could prove you didn’t really need to loaning about half the money you could prove you didn’t really need.

On the business side only a small part of the problem is banks. The bigger problem is that there is virtually no “private money” available either. At least in any significant quantities. If you have great cash flow I can get you a million dollars in four days. It’ll cost you about eight points and 18% interest for two years and can be extended for another two years for an additional five points. But you’ve got to have great - GREAT - cash flow and a strong balance sheet.

If you want 50 million, tough. Without regard to your financial statement.

If a banker can pay you 200 basis points on your time deposits, and then turn around and park the money in Aaa corporate bonds at LIBOR+800, what do you think he’s going to do?

That capital isn’t going anywhere because no one wants to take any risk. And it’s going to stay locked up where it is for a while.

In bad times like now, the companies that survive are the ones that can continue access capital at relatively low rates. There’s also going to be a bias in favor of privately-owned companies, and businesses that are less capital-intensive. Those trends will drive several very interesting transformations in industry that won’t become clear until they’re already nearly done.

I do hold a broader idea of savings, under current conditions especially, note my comment on “hoarding”, a perfectly sensible strategy despite the ignorant description used, and in any case a practice integral to a well managed corporation.

Again, a minor point and not meant to be disputatious.

Of course, that too will lead to lower growth, but is what we’re seeing really “savings” or “debt elimination”?

(I guess, either way, it doesn’t matter - the end result will still be 2-5 years of lower growth…)

Pelosi has said the debate on the stimulus package will be closed, and the minority will not be allowed to offer amendments to the Democrat plan. The alternative plan will not make it to the floor of the House for consideration. It will be rejected on its face, and the details of the plan will have to be disseminated through the media.

From that point forward, every congressional Republican will have to point out the fallacy of the Democrat plan, and they must go on record rejecting said plan.

The danger of Savings is “nil profit” and near-zero growth.

Strictly speaking, savings are an intertemporal substitution. They’re a deferral of consumption to some future time, where the deferral is made in response to some rational expectations about the future.

When people save more, consumption in the current period is necessarily less than it would otherwise have been, and that shows up as lower economic growth and, at the margin, higher unemployment.

But Americans have been trained for decades to think of investment (in real estate, stocks and bonds) as an effective substitute for saving. If you choose your time periods carefully, this is an easy enough case to make.

But what about now, when so many people have lost almost half of their life savings as fast as lightning?

Wouldn’t you expect that everyone who remembers 2008 will have a tendency to save more in cash or cash equivalents (like short-term government debt) and invest less in financial assets?

Saving rates are going to go up, and investment returns are going to go down (for related but different reasons) for a long time to come. A proper economic policy would recognize and deal with this reality.

I cringe every time I hear that in this bailout mess business is “hoarding” cash, the hell they are. Just where is this giant mattress wherein all the money is being mindlessly stuffed? Balance sheets are being supported as bad assets are written off and cash is placed in liquid, short term investments.
I wonder if Keynes ever saved money, or do our national economic advisers, the ones who will take us by the hand and guide us through tough times.

Thank you for Francis for another great explanation.

Vote for any reasonable tax cuts (they shouldn’t be on record as supporting “give outs” to non-taxpayers, but they should be on record support tax cuts that are good ideas at any time), saying they are trying to improve a “flawed” bill.

Then they should vote against the whole bill, saying that, in the end, it’s laden with too much “pork”, will not stimulate the economy sufficiently, and will disastrously increase the deficit and the national debt.

Adding some of what you say in their final statement would be a great idea.

But doing this is the best of both political worlds.

Republicans need to genuflect and say “have at it”. Let no Republican put there name on it. However, we know there are still just enough squishes in the Republican Main Street Partnership who will vote for it, of course led by that “stalwart conservative” [yes its snark] John McCain.

Then pass the popcorn as it does nothing but disrupt the recovery time line that has already developed.