President Obama pressed Wall Street bankers at the White House on Monday, urging them to make more loans and modify mortgages to help taxpayers who propped their banks up with federal bailouts. "My main message in today's meeting was very simple: America's banks received extraordinary assistance from American taxpayers to rebuild their industry," Obama said. "Now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy." The president was expected to pressure the nation's top dozen bank chief executives to open up the lending spigots to help the economic recovery.
It is true that the Federal Reserve is doing all it can to increase bank loans and the money supply and the Federal government did institute that TARP “bailout” of our major banks. Yet, banks have chosen to let reserves skyrocket. Paul Krugman notes that the recently departed Paul Samuelson sort of predicted this back in 1948:
Today few economists regard Federal Reserve monetary policy as a panacea for controlling the business cycle. Purely monetary factors are considered to be as much symptoms as causes, albeit symptoms with aggravating effects that should not be completely neglected. By increasing the volume of their government securities and loans and by lowering Member Bank legal reserve requirements, the Reserve Banks can encourage an increase in the supply of money and bank deposits. They can encourage but, without taking drastic action, they cannot compel. For in the middle of a deep depression just when we want Reserve policy to be most effective, the Member Banks are likely to be timid about buying new investments or making loans. If the Reserve authorities buy government bonds in the open market and thereby swell bank reserves, the banks will not put these funds to work but will simply hold reserves.
Samuelson was arguing back then that we might need more vigorous fiscal stimulus in situations like the one we have today. I think our President understands this as well but then there certain members of Congress who do not.