[jyl]

Many banks are in trouble, their existing loans are going bad at such a rate that they believe they need to hold on to cash to meet required capital ratios and/or survive.

Banks also see real estate values still declining and forecasted to decline further, and also see how poor the recovery rates are for foreclosed real estate, are not eager to loan on collateral that is falling in value. I don't know anything about construction loans but I'm guessing the fact that the collateral doesn't even exist yet can't help.

Basically, the govt has injected a large amount of capital into banks but at same time a large amount of capital is evaporating as asset values fall and borrowers default. Also, after a decade of enthusiastic lending, loan officers have swung back to fearful lending - the old human thing of over-compensating.

The govt's actions in 2008 were meant to keep banks/banking system from collapsing.

Any talking heads and Congressmen who is surprised/outraged that bank lending hasn't rebounded is, err, under-informed. I don't know many (any?) informed investors/economists/etc who thought those actions alone would be sufficient to cause bank lending to rebound. Investors expect consumer credit to remain very tight in 2009 - if investors thought credit was about to loosen, market would be in a huge rally now.

There was a study of financial crises and their cost to the country and economy, looked at tens of such crises in various countries over the past many decades. I can't recall the author but you might be able to find via Google. In a nutshell, the typical cost as % of GDP is considerably more than the US govt has spent so far plus what the govt plans to spend in 2009.

In other words, don't expect a quick or easy solution. Injecting a few hundred billion of capital in 2H08 is far from enough. Will need much more action (incl money), and more time as well.

That said, I recall some PPOT posts by someone who ran a community bank, saying that community banks had plenty of money to lend and were doing business as usual. This was a few months ago. So maybe better luck going to smaller banks?