U.S. banks posted their biggest profit in three years for the quarter ended June 30, 2010. According to the FDIC, U.S. banks earned $21.6 billion in the second quarter of 2010.

So, the improving economy is bringing bank profits back up again. When you add in the $18.0 billion in profits these banks had in their first quarter, we are looking at a profit for U.S. banks of about $40.0 billion in the first half of this year.

But, despite the banks starting to lay on the profits again, they continue to tighten the lending standards. In the second quarter, net loan and lease balances for U.S. banks declined $95.7 billion.

Hence, instead of the banks lending out money to get the economy going, they are lending less. Sure, I’ve heard bank presidents say that consumers and businesses are not borrowing. But I also know of many businesses that cannot get loans, because they cannot meet the stricter requirements. You cannot compare the lax lending rules of 2005-2007 to the rules of today — there is a huge difference.

Banks have an obligation to their shareholders to make money. After all, it is the shareholders’ money that is at risk. Thus, to ask banks to make lending easier, with the risk of loan losses increasing, is not fair. That’s like asking my business to lower the cost of our publications to make them more affordable to all, but that would risk the viability of the business and the people who work in it.

In this economy, on one side, you have the consumers/businesses that need money, but can’t get it, because lending requirements have become stricter. On the other side, you have the consumers/businesses that don’t need the money and are not borrowing (even though they qualify), because they are concerned about spending/growing in today’s weak economy. That’s why they call it a recession.

Yes, economic conditions are improving. But until confidence levels return — the confidence for banks to lend more aggressively, the confidence for consumers to borrow to spend again, and the confidence for businesses to invest in plants, equipment and marketing again — the black clouds over this economy will only disperse ever so lightly.

Michael’s Personal Notes:

I’m getting really tired of the media (mostly financial commentators) bashing President Obama. Let’s get real; he is our President. Bashing our President is shameful.

I am not tied to either political party. I have read good arguments on how President Clinton started the economic mess with his policies that pushed for increased home ownership in America. I have read good arguments on how President Bush’s Administration spurred the economic havoc by not providing enough financial industry oversight.

Whenever I write about politics, I get the most e-mails back with reader opinions. It is obviously a very sensitive topic. I’m not going to individually blame the Administrations of Clinton or Bush (although maybe collectively they should be blamed), but I do know that President Obama walked right into this mess.

President Obama, along with a Federal Reserve Chairman who has studied the Great Depression’s causes and effects, is doing the best he can with what he knows. We all have personal opinions: I’m not a believer in making the government larger to cure a recession; I think the damage to the economy would have been less significant if Lehman Brothers was saved; and I’m disappointed that small business in America wasn’t helped during the recession.

But would I bash and smear a President, the highest elected office of this country? Never. We need to face the reality that we have never had, and will never have, a President with a deep, experienced understanding of the stock market and the economy. The lack of this doesn’t mean that the media has the right to bash the President continuously.

Where the Market Stands:

The Dow Jones Industrial Average starts this first day of September down four percent for 2010. Most advisories I read (that are not published by us) are negative on the stock market. Most popular business magazines are starting to carry articles on the “double dip” recession. Negativity is strong. In this type of environment, the market usually surprises on the upside.

Hence, I’m maintaining my opinion that we are in a bear market rally. This opinion has served me well over the past 19 months and, until I see corporate earnings decline or the main stock market averages move decisively lower, I remain positive on the bear market rally.

What He Said:

“Prepare for the worst economic period ahead that we have seen in years, my dear reader, as that is what I see coming. I have written over the past three years how, in the late 1920s, real estate prices fell first before the stock market and how I felt that the same would happen this time. Home prices in the U.S. peaked in 2005 and started falling in 2006. The stock market is following suit here in 2008. Is a depression coming? No. How about a severe deflationary recession? Yes!” Michael Lombardi in PROFIT CONFIDENTIAL, January 21, 2008. Michael started talking about and predicting the economic catastrophe we started experiencing in 2008 long before anyone else.