Is The Federal Bailout Stifling Credit?

Banks have a simple and basic business model. They take in cash from depositors and, then, use that cash to make loans. Those loans become the income basis to which they can pay interest to their depositors and cover their expenses. Hopefully, after paying expenses and interest on deposits, the remainder is profit.

So, if banks need loans to make money, why aren't they giving up loans to consumers for new houses, cars, tuition, remodeling, new businesses, etc. Partly, it's because they don't want to get burnt with bad loans. But, another part of that is the Federal Government. By the the U.S. Treasury giving them bailout money, the incentive that drives them to make loans, their profits on lending, is being negated. In many ways the Federal Government has become their guarantor that they can pay interest to their depositors and pay their operating expenses without having to give out loans. There is no profit motive and consumer loans won't flow again as long as Daddy U.S. government is around to give them money. In essence, we have created a welfare system for our banks and all the ills of any welfare system are showing up in making our banks lazy and not willing to work for their money.