The reluctance of banks to lend these days has me curious. When capital becomes more scarce, does not it’s value intrinsically rise? In the case of money, the reluctance of banks to lend, which seems to stem from not knowing how many bad assets are held by trading partners, should and does lead to higher interest rates. However, Bernanke and company are keeping rates low, and keep the shell game going by injecting capital into 9 big banks regardless of their assets. My open question is whether holding down the interest rates has any economic standing whatsoever, or is it simply to keep the adjustable rates mortgages from going up and more homes from foreclosing? Isn’t the right thing to do to let rates go up and let this adjustment work it’s way through the market? Once we find out who are the winners (Wells Fargo?) and losers (Citibank?) we can more quickly park money in safer harbors.
Oh, I guess we should just let the government choose winners and losers.