The Banks are Lending, the Banks are Lending...NOT!!

As the market digests the federal governments "How to fix the economy in as few easy steps as possible and not cream the taxpayer," plan, it's more than instructive to address some of the fallacies surrounding this monumental and historic event.
What to make of the underpinnings? First, let's take a look at some of the popular mis-conceptions about what ails the American economy:
1. "The banks aren't loaning any money to any one." Somewhat true, although the American consumer and corporations took on so much debt that its like balancing a watermelon on a toothpick...it's gonna collapse under the weight of it. They are lending, just not as much as they have in the past.2. "The banks aren't lending because of all the toxic assets that are really not toxic, just priced incorrectly." Banks are fearful of many things, but the biggest one? Losses that cripple their liquidity. Banks simply aren't going to make loans to entites that can't pay them back, thus creating the potential for future bumps in their equity.3. "Toxic assets can't be accounted for because the market doesn't understand what they're really worth." Let's examine this one...these assets are bad because they are worth less than the banks say they are. $5 trillion dollars say that's about right in the form of residential real estate losses alone. Hey, why should the banks shoulder that economic burden? If they share it all, they will be wiped out so let's just pawn the losses off on the taxpayer! Novel idea that looks like it's going to work, although we have NO say on the matter.4. "When these bad assets are off the banks balance sheets, they'll surely start lending again." Oh, they'll be lending again, (see #1), but the housing market and economy will still be hampered, so they'll wait to see the economy wait to hit the very bottom. They have time to wait, the capital seeker doesn't, unfortunately.5. And finally, "When the banks start lending, the economy will recover." And why would someone think that? The American consumer will still have crippling debt, the housing market just doesn't spring to life again and the poor soon to be retired type? Back to the workforce again! Let's face it, consumers have no more place for debt even if the banks are ready to bus them in to their branch to sign them up yet again.
So, in the end result, the overwhelming debt won't evaporate overnight, it will just be passed from the banks to the taxpayer until the government admits it was shortsighted, (sure), and the taxpayer will continue the long hard fight to not only pay their way, but their Big Brothers way too.