According to Wharton finance professor Jeremy Siegel, this is bad and making things worse. The banks got bailout money from taxpayers, but they're hoarding it or using it to buy smaller banks. What they're not doing is lending it.
As a result, good borrowers are paying the price for bad borrowers. Good borrowers can't contribute to the economy, run their businesses as easily, and promote growth. The prospect of frozen credit lines spreads fear and paralyzes businesses and consumers.
Siegel says there's no problem with cutting credit lines for delinquent borrowers. However, if a bank took government money and want to punish good borrowers, the bank should give the money back.
What do you think? Are credit limit cuts (or the potential for frozen credit lines) hurting the recovery? Tell us about it in the comments.
Further reading:
- More Credit Line Cuts Expected
- Siegel on Banks and Lending (MP3 Audio, Text)