Ryan responds to my response to his response . . . oy.
Yes, there is fear that some banks may fail. But there are a lot of banks in the United States, and not all of them are Citigroup. So the issue here is not that no lending is available (and this was Megan's initial point -- that a lack of lending would reduce the multiplier on the stimulus). And the Treasury has taken steps to limit the negative competitive effect of propping up zombies, by throwing open TARP money to many, many financial institutions. Is there still an argument for more intervention, in particular, to find ways to wind down the systemically important insolvent banks? Absolutely! But I don't think it's absurd to say that such actions come with intolerable risks to the financial system.
Megan says I "slam" her by saying that she's looking for a way off the Obama train. My point was this -- she said she had buyer's remorse, and given the ludicrous ideas coming out of the GOP, and John McCain, that makes no sense, economically speaking. I don't know why someone focusing solely on the policies would write that, and so I concluded that Megan was focused on something other than just the policies. Which perhaps was improper. My bad! But still, it makes no sense.
Of course, now we have the FDIC--but we also have a much more complicated financial market, with a lot of remaining run potential. Credit can--and indeed has--drained out of the system in a lot of places; the only real growth area is in lending to the Federal government at near-zero rates. The commercial paper markets are finally settling into an uneasy new normalcy. The entire financial system is still very much afraid of the fallout of a collapse of CIti or BofA, and reserving accordingly.
No one wants to make long-term committments with this much uncertainty. The stimulus doesn't erase the uncertainty; it just spends in spite of that.
But when times are uncertain, and people are not totally budget constrained, the sensible action to take is to bung as much of that government money as possible into a bank account. And as long as banks are desperately building up capital reserves at all costs for fear of another panic, that money is going to stay right there on the balance sheet, stolidly un-multiplying. Whether they are building up those reserves against a panic, or against the sucking vortex of their previous bad loans, is sort of a secondary consideration.
As for the buyer's remorse remark, perhaps it was badly phrased. I am still of the opinion that Obama was a better choice than McCain--but the terrifying pace of inactivity at the Treasury, combined with the administration's obvious focus on popular ideological activity rather than grasping nasty nettles like the banking system, is eroding that conviction. Ryan is free to believe that this is perfectly irrational, that the Obama administration's near-ideal conduct in prioritizing stimulus over bank reform and indeed, staffing the Treasury, could not possibly give anyone but a secret Obama-hater any cause for alarm. I must simply beg to differ.