Banks are sitting on a cash hoard of about $800 billion instead of the more typical $3-10 billion, ignoring the calls from Congress, the media and special interest lobbyists to increase loans, especially mortgage loans. This is rational behavior by the banks. They see a shortage of acceptable loan opportunities amidst a much large than usual supply of bad loan requests. Attractive loan opportunities are always scarce in a recession but this time Congress has made them even scarcer by permitting some borrowers not to fully repay loans, thus turning acceptable loan applications into rejected loans.

» read entire article