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October 06, 2011

Geithner Cites Banks' Risk-Aversion as Threat to Economy - Well D'uh

Treasury Secretary Timothy Geithner said Thursday that financial institutions in the U.S. risk holding back the economy because they are unwilling to lend.

Well D'Uh. The lack of lending to people and companies that are perfectly able to pay back the loan has been slowing the world economy for three years.

People cannot refinance mortgages even if they have the assets and monthly income to service the debt. They are locked into higher payments because of rules at the Banks or Fannie and Freddie or because of how the loan was split up. Not being able to refinance has no relationship to whether they would be able to service the new loan because they are being locked into a higher payment.

This means that money that could be used for new investments or financial activity is left in stasis. It is like financial musical chairs where no one can change chairs. The music does not start up again and the money is not allowed to move to more efficient places and projects.





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