WHY SHOULD BANKS LEND ANY MONEY FOR ANY TYPE OF LOANS-THEY HAVE FREE MONEY RIGHT NOW AND NO RISK!

The banking business always had a certain level of stuffy snobby attitude. I remember taking the commuter train into the downtown terminal and all the "bankers" were always on the 9:11 am arrival train. Going back home they were on the 4:44 train.

Bankers hours, not bad.

The complicated world of banking and bankers with all the derivatives, and new fangled financial instruments came to daylight during the various "too big to fail" scenarios, with government bailouts being synonymous with the banking business.

Everyone is still wondering why with all the money the government has thrown out with TARP funds and other loans, as well as banks being able to essentially borrow from the TREASURY at ZERO interest, why are they NOT LENDING?

That's an easy question.

The banks can borrow money at ZERO from the (US TAXPAYERS AND THE TREASURY), and THEN USE IT TO BUY treasury SECURITIES THAT PAY 3%, WITH NO RISK. THIS IS A NO RISK SPREAD for the bank, so why should it make risky loans to shaky businesses?

Nobody can blame them, the government as usual by interceding in the markets has caused anomalies by its actions, none of which have any benefit for borrowers.

In fact, the news is widely disseminated that tends to forecast worsening financial conditions for businesses, so why risk loan money?

Big banks have raised billions since the stress tests and policymakers are now turning their bailout affections to life insurers and automakers. Is the government trying to tell us the crisis in the financial sector is over?

While it's too soon to say they're out of the woods, "the government has set up a situation where the banks can hardly lose," says James Galbraith, economist, professor and author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too.

Beyond the TARP funds - which Galbraith calls an "unproductive use of Federal borrowing" - banks are benefiting from lending programs that effectively allow them to borrow at zero and reinvest in Treasuries at around 3%. ( I TOLD YOU SO)"A bank doesn't have to do anything to make money," he says. "The banks' return on equity is going to be very good. They're going to be able to restore their finances."

While this is good for banks and a justification for the sector's recent rally, the problem is the government's "free money" program means banks have little or no incentive to do any actual lending. Combined with rising unemployment and the ongoing housing crisis, this means any recovery is likely to be muted, at best, Galbraith says. Furthermore, anyone hoping for a return anytime soon to the salad days of the mid-2000s is delusional.

So now what, do we buy bank stocks?