How Consumer Loans Saved the Banking Industry
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In the past week, a flood of European capital into yield-less U.S. bonds reaffirmed a central problem of the economic crisis: a lack of good places to invest.
Safety, not profit, drives the allocation of capital today. Many banks are still reluctant to lend, and many prudent businesses fear borrowing or are hesitant to expand amid so much uncertainty. Companies willing to borrow, by their very eagerness, can appear dubious. This state of affairs is nothing new -- it was a hallmark of the Great Depression, and it offers some lessons for today’s bumpy recovery.