What Do Bankers Really Want?

Much of the $350 billion in public money that the Paulson Gang has so far doled out to banks has not gone to banks that were on the verge of insolvency but to generally healthy institutions. The hope being that maybe, just maybe, some of these extra dollars would incline these banks to lend more to individual consumers and businesses, thereby improving our national economic prospects.

This hasn’t happened. Of sure. Healthy banks took the money. Who wouldn’t accept what an addled rich uncle was giving away. But banks are in the business of lending. And thus what they really want are what are known in the trade as “good credits”—credit-worthy borrowers who can repay the money they borrow.

Had the financial geniuses in Washington understood this simple fact, they wouldn’t have focused on throwing money at banks. Rather, they would have asked themselves: How do you make existing or potential borrowers more credit-worthy?”

This obvious question would then have elicited an obvious answer: You increase the income of consumers, and you boost the bottom lines of businesses. And what’s the best way of doing this? A payroll tax holiday that boosts workers’ wages by 6.5 percent and the bottom lines of businesses by the same amount—funding Social Security benefits the payroll tax covers with the same level of public borrowing that’s been wasted with bank giveaways.

Will the next Administration or the next Congress in Washington pursue this obvious tack? Probably not. Why bother doing something what’s simple and obvious when you can panic and play with untried financial gimmicks or huge new public works bureaucracies?

Why indeed?