Is it time to by-pass the banks?

[Eddie Ziv]

The government spent billions of dollars to bail out the banks in hope to stabilize the financial infrastructure so bank would start lending again. It seems to fail for the most part.

Wouldn't it be better if the government have let those banks fail, created a temporary banking system and funnel that money directly to people and businesses?... and if so, is it too late?

[Steve Babiak]

Eddie,

I think the banks need a bypass - coronary bypass surgery to be more specific :)

As for government creating a "temporary banking system": for some reason, I just don't like the sound of that.

Not sure how to solve the "get banks lending again" problem. Last time I spoke with one of my bankers, he said that they were lending - it's just that the loans were going to those who "didn't really need them". The explanation that followed was that those in good financial standing, with reserves and assets could use their own funds and didn't "need" the loans - they just preferred to use the loans (OPM).

As for those who would be a risk to lend to, well, they just wouldn't be receiving loans based on the bank's restricted lending criteria.

Face it. The banks got burned (foreclosures galore these days), and so now they are afraid to play with that fire that got them burned.