So no one knows? Seriously?

With the lending market frozen, no-one is buying anything.

If no commerce is occuring, the economy shuts down.

So yes, the banks need to start lending and loosening the credit markets so that money (you know, that lifeblood of the economy stuff) can start flowing again.

It's that simple.

Charles, it was not that lending is a problem, it was lending with the aim of gambling for a very large return that was the problem.   The banking and mortgage industry got into a sort of pyramid scheme and frankly, got greedy.  If banks stay with what they have, fees up the you know what, interest, and so on, no problem.  But they didn't stop there.

Be well.

OK, but you didn't really answer my question. They can start lending, but to who? If lowering the bar is what got us into this mess, how can they lend and who can they lend to if most people either won't qualify (because of bad credit, loss of jobs and just don't qualify period) or don't want a loan because they can't afford to spend more money on anything (business, person, etc) anyways?

Fine, but there were qualifications required to be able to borrow money before that were lowered. Today we have a lot of people who are either jobless or earning lower wages with more on the way, very few people are either buying homes or cars, and those who do have money are holding back on spending because we really don't know what the future holds for us. So, how can we get people to borrow money at all for anything:

- borrow money to start a business if no one is spending

- borrow money to buy a car but they either already have one or are to afraid to buy domestic cars due to the big 3 crashing

- borrow money to buy a house when prices are still dropping and they rpobably can't sell they house they currently have

-borrow money just to spend

-borrow money to maintain a business you already have but may lose anyways

It seems there are more people less likely to borrow than those who might, if they qualify at all. Are they gonna go back to the high standards that kept a lot of people from qualifying before and if so, how will they lend when less people will qualify?

Charles, this about sums it up. Remember a month ago when Paulson went before congress and said (paraphrasing);

"The entire economy is days away from a complete meltdown. I have a plan that will stop this from happening, but you must give me 700 billion dollars to buy bad assets from banks. This will work!"

Then, more than a month later, what happened?

Last week Paulson did a sudden about face-

"You know that plan I had needing 700 billion dollars? Yeeeaaaahhh. I've been thinking, and my first plan is really dumb. But don't worry, I've got a second plan now and it's better. Instead of buying bad assets from banks we're just going to give them big chunks of money. Oh, and we're going to extend this to non-bank financial companies as well, but not the auto industry because none of my good friends are involved in that, kthanx!"

Paulson came and told us he had the answer and knew what was going on. We said "Yay, here's your ridiculously massive amount of money!!!"

Then he came back and told us he was wrong, but now he understands and has a better plan, still requiring a massive chunk of money (which will undoubtedly expand indefinitely) and what did we do???

"Yay! here's your ridiculously massive amount of money!!!"

It's a complete farce. Paulson isn't in this to save the economy, he's in it to save the interests that he and his friends are vested in. That is why since the summer of 2007 almost 4 trillion dollars (I didn't believe this figure at first myself, but if you research all the actions of the Fed and Treasury in combatting this it has been over 4 trillion!!) has gone to help out the financial sector while the middle class can't afford to pay for lunch.

You do realize that the economy is no longer melting right? Sure we have some companies cutting and some that are dying, but it's hardly anything close to what it was before the $700 billion bailout plan was approved. We basically stopped from going down further, our current problem is we are not moving at all, which is why so many are getting affected. What we need to do is start moving up again which is probably why Paulson decided to change his ideas. Of course, you point to him as not doing what he said he would do but you failed to point that it was a Democrat Majority Congress who gave him full power with little or no regulation or supervision. Besides, where are your credentials to criticize Paulsons decisions on what to do with this money?

BTW Artysim, you didn't really answer my question. I ask how can banks lend again when the people they gonna lend to are the same ones who would not have qualified otherwise but because the bar was lowered they did anyways and we are where we are now? To lend again would mean one of 2 things:

1) Either stick to the orignal requirements and lend to few people who qualify (which will help the economy improve but at a very, very slow pace)

or

2) repeat history and lend money to the same people who shouldn't have qualified in the first place (which would simply bring us back to this same situation again)

That's the goal.  But with the credit market freeze, they can't even loan to qualified, able borrowers.  That's who they need to get back to lending to.  There are more of them than you think.

The 700billion was never meant for the little guy.  It was meant so that banks started lending bridge loans to businesses (so they could buy inventory to sell to you in which to repay the loans).

Karl Denninger seems to think the only way out is to get rid of the debt and the mistrust of financial institutions. Maybe he's far out, but he manages to explain some things with better examples than I've seen anywhere else.