by Henry Blodget for Yahoo Finance

The massive Wall Street bailout in the financial crisis was justified on the grounds that banks had to be saved so they could keep lending to the “real economy.”

Unfortunately, despite the bailout, the “real economy” has been clobbered–in part because bank lending has fallen off a cliff.

Why aren’t banks lending, despite now having plenty of cash?

In part because loan standards have gotten more stringent, as the banking industry sobers up from its ridiculous lending binge of the early 2000s. And, in part, says William Isaac, the former head of the FDIC (1981-1985) and the author of “Senseless Panic,” because business confidence has been destroyed.

American businesses have no confidence that their government won’t do something really stupid, Isaac says. And this concern is reasonable: After all, everyone watched while silly government policies fueled the huge debt boom–and then watched while the TARP bailout and other moves saved Wall Street while throwing the rest of the economy to the dogs.

But confidence may begin to return in November, Isaac says, if the Republicans regain some seats in the House and Senate. This isn’t because Republican policies have been any better than Democrat ones–Isaac blames both parties for the horrible policies of recent years–but because gridlock will make it more difficult for the government to do something truly reckless and stupid.

So perhaps we have that to look forward to–a government with its hands tied, so it can’t do as much harm.

Meanwhile, the economic news has actually been a bit better of late. Here’s why we might not be headed for a double-dip recession.

Original Article Located Here.