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The case against forcing banks to lend

January 21, 2009 by  

Is easier credit a good thing?In the current economic climate, it is common to hear people speak about the need for banks to relax their lending standards and start approving loans again.

But is this really a good idea? Writing for CNN Money, Paul R. LaMonica argues that if financial institutions lend for the sake of it, the country will have a more difficult time pulling itself out of the crisis.

Instead, banks should use the funds from the Troubled Asset Relief Program to shore up their balance sheets and protect themselves against the fresh wave of credit defaults that are around the corner, he says.

Considering that irresponsible lending was a cause of the current recession, it would be a mistake to re-start a system of lending to people who cannot afford to pay the money back, according to LaMonica.

Daniel Alpert of investment bank Westwood Capital, called for a rethinking of "so-called stimulus."

"I don’t think massive consumer spending is the way out. The country needs a pickup in savings and investments in the future," he told the news provider.
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