THE GAME NEEDS NEW BLOOD!

Well, we're a couple of years into the recession, and I hope we're all enjoying ourselves. Contrary to informed predictions, the sun has come up every morning, it still rises in the east, and the home team continues to break your heart.

So, where to we go from here?

Civilization as we know it did not end, but things on the financial front will be different for some time. The lessons learned will control banking and the movement of money for, probably, at least a decade (or until we forget how much the recession hurt, whichever comes first)

For sure, we've learned that Americans can't be allowed to play Monopoly without close supervision, and the playground supervisors aren't any smarter than the kids on the merry-go-round. (See Madoff, Bernie)

There's a universal realization that we don't play well with real money, and it's hampering the recovery. Everybody's afraid to make a move; the consequences are simply too dire. Many banks can't lend because of problem assets and regulatory fiat that virtually shut off the discretionary lending that's vital to a vibrant economy. Those that can lend are afraid to; if they have few problems, the want to keep it that way, so robust or even conservative lending is being put on the back burner for the duration. And nobody knows what the duration might be.

In the second quarter, outstanding bank loans took the sharpest drop since the statistic was instituted in 1984. The Fed is pumping stimuli into the economy, and bank regulators are chomping like beavers to dam it up before banks, who've proven themselves irresponsible, get crazy all over again and lend it out.

Want to see a creature roll up into a ball like an armadillo? Just threaten a regulator's job and pension. No regulator ever got fired for saying "no". Many have been fired for saying "yes".

I would be great if somebody besides Uncle Sam would get in the banking business. Better for the taxpayers, for sure. Private capital is starting to wake up from hibernation and is sniffing around for investments. There are some banks out there for sale that have relatively few problems, and could do some exciting things for their investors,customersandthe economy. But the federal regulatory agencies are making it almost impossible for private purchasers to cut a deal, for fear, apparently, that entrepreneurs can't be trusted.

I've spoken to some of these groups. They're levelheaded business people with conservative business plans. But the supervisory agencies, smarting from media and congressional criticism for being lax, simply aren't letting private capital in the door.

The business of banking involves making a profit on the movement of money. If it doesn't move, the recession will last a lot longer than anybody wants to imagine.

The world economy needs new players and fresh capital. The feds need to let them suit up and get into the game.

OBSERVATION OF THE WEEK:

Boards of troubled banks often don't know the trouble their in, or how to navigate their institution through the maze of regulatory sanctions. More on that in the next posting.