We’re starting to understand why ex-HP CEO Carly Fiorina got benched by the McCain campaign during the final few weeks of the election. Today she appeared on CNBC to argue that since the banks got money from the government to spur lending, then the banks themselves should turn and lend that money to the automakers. The logic is vaguely seductive, but patently absurd.
Throughout the interview, Fiorina asserts and re-asserts that our core economic problem is a lack of credit, and that the lack of credit should have been solved simply by giving banks more money. Thus, she scoffs at banks for not lending to the automakers merely because they’re not creditworthy. And she says the economy would be back on track if only there were cash available for auto loans to consumers.
But the banking sector’s unwillingness to lend is only a symptom of a general lack of confidence in the system. Simply plumping up their balance sheets doesn’t change the overall outlook.
The sooner we stop kidding ourselves, the better. The banking bailout wasn’t about spurring loans to consumers or encouraging them to invest in shaky businesses. It was about saving all of the banks from bankruptcy, which would’ve cost taxpayers trillions and trillions more. That was the goal. If our goal was to just subsidise loans that don’t make sense, the government could do that directly. And in the case of the auto bailout, it should — asking the banking sector to put it closer to the brink of collapse by propping up Detroit would be economically suicidal.