I love having a discussion with an intelligent and knowledable person! I agree entirely with you. I will also add that banks are not lending much to either consumers or businesses, partly because of Dodd-Frank, which underscores your point. My point is that even if we got rid of the fear of increased taxes and many of the recently imposed regulations, we would still have a credit problem because of government spending beyond its means, unnecessarily tapping into the pool of available capital.
There is another, perhaps more important, reason banks aren’t lending. They got pressured into the mortgage crisis by politicians and activists. When all went sour they were blamed and beat over the head by the same people who pressured them to do it. Now, with interest from the Fed at essentially zero, they simply buy Treasury notes at a profit and avoid any risk in the market place.
This has a lot in common with what the Democrats do when they increase the size of governments.More employees equal more union dues paid by those employees. The union leaders repay the Democrats with political contributions and “volunteers” for their elections. It is money laundering pure and simple.
The same is true with the banks getting free money to buy US securities to keep the Democrats afloat.