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The real problem is the packaging and resale of commercial paper.
If you lend someone money at 24% you make a lot of money when they pay you back BUT you are assuming the risk that they may default. So lending money at 10% to someone who pays you back IS a better move than lending money at 24% to someone who defaults. That makes it within the lendors self-interest to carefully loan money to people who can pay it back (based on actual financial documentation).
However, if I can lend money at 24% and takes all those loans and bundle them up, I can sell that bundle to someone else. It doesn't matter to me if that loan will ever be repaid because I won't be there to collect the debt, I'll have sold it off to another bank who buys bundled debts based on meaningless 'ratings' by financial companies that profit from transactional volume and therefore inflate ratings.
The reason to evaluate the liklihood that a loan will be repaid gets muted and all that matters is getting as many people as you can to borrow as much as they can for as high a rate as they will accept.
That's what got the banksin trouble. Now they got their bailout money and want to stop the game of musical chairs that they started - during a moment when the most bankers are seated and the most lenders are left standing up out in the cold.
The government should REQUIRE lending and threaten to dissolve the board of any bank failing to provide liquidity to debtors who have not defaulted or abused their credit lines.
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