An individual's ability to obtain a loan used to be an attribute of the rich. Rockefeller and all other rich people before knew that taking a loan was tantamount to being able to communicate with and influence the future.
We should know that a responsible entity will engage in a loan only if they knew they could muster the resources to pay it back as promised. But we should also know that we all cannot be responsible simultaneously. If the distribution of responsible people does not counteract simultaneously the distribution of irresponsible people then the balance is tipped either towards risk or towards centralization. Let me explain why I think this distribution of societal responsibilities colluded with banks' current objectives and caused the current financial cataclysm.
In some sense, the mechanisms of crediting are a gambling mechanism of tremendous value. Credit mediates between the present and the future. From lenders' perspectives loans are opportunities to equalize the risks associated with future endeavors. Lenders need to give as many loans as they can so that they can concentrate future streams of earnings into as much current money -earnings- as possible, and be able to do so on a reoccurring basis. Quality loans given today represent expected future growth. Bad loans handed out today represent the opposite. The present economy is financing future expected growth (in an insidious way, the present has overextended its reach and tapped unrealized yet future growth).
From borrowers' perspectives the ability to obtain loans is a validation of their economic perceptions. If borrowers convince lenders that their dreams can bring current fortune to everybody then why should lenders not oblige them with the loans they are asking for?
The current economic crisis -surprisingly deep given our understanding of the economic theory- is, at its roots, a crisis of the perception of the density of time. Certainly when lenders' perception of time changes at different rates than the borrowers' we get into a sort of confidence crisis. This is a classic time density perception crisis and not necessarily an economic expectation crisis.
The government has usurped credit to fulfill immediate needs and it has forever altered people's perception of 'the credit'. The value of credit is in doubt and not its potential. The government created the current crisis either directly or indirectly and it is the government's problem.
Government's has changed timing perceptions and these distort our ability to distinguish between real and ephemeral economic indicators. When the government can borrow money at low rates when the rates should increase it affects the value of the entire economy. Credit will take a very long time to regain its true value. That is unless the government either changes the credit reference point or the economy changes the government by asking it to pay a 'market' rate for its borrowing cost.
But what is the primary financial source of credit? Financial markets used the leverage savings to transform them in loans, but nowadays that source of credit is rater small since private banks can lend money in a fractional way which by-passes the availability of savings restrictions. The government -via the Federal Reserve System (FRS)- can do the same at a much larger scale. Individual savings are dwarfed by the crediting ability of the FRS.
Current policies have all tried to make the future growth less appealing (maintaining persistently low interest rates -negative real rates actually- as well as -as a nation- spending far more than what we have or even expect to have) and I think this is an incorrect and myopic approach.
The FTS is the time density mediator of last resort, but it has not been able to convince anybody that its attempts are meaningful. The FRS is supposed to defend the value of credit and it has done just the opposite. Why do we continue to tolerate the FRS' actions when all it does is to usurp the private savings and nationalize them via purchases of credit instruments issued by the USG? Who is going to defend the savers if the FRS is not able to do it?