Another Look At TARP Recipients Not Lending

February 24, 2009

The Facts

Six days ago The Washington Post published this article which talks about how recipients of bailed out banks are not lending the money they have received from the TARP fund. The article starts out with “the largest U.S. banks reduced the availability of money for consumers and businesses during the final months of 2008 even as the government invested tens of billions of dollars to help them make new loans”. The Post quoted the Treasury Department for this information. Today Ben Bernanke was in a Q & A session with the Senate Banking Committee. There were several questions directed at Bernanke on this very point. Republican Senator Kay Bailey Hutchison said she had heard of many small & medium size businesses that said it was impossible to get a loan. A couple of other Senators also asked Bernanke about banks issuing loans. One said he had reports that the banks were using TARP money to buy US treasury notes. Bernanke responded to all these questions, but really gave no satisfactory answers, and he certainly didn’t address banks buying treasury notes.

According to the article by The Washington Post, Bank of America and Citigroup were the worst in lending, but they received the lion’s share of the TARP money that has been issued so far. Their loans dropped 15% in December and another 11% since then. They’ve also reduced spending limits of card holders by 2%, or $45 billion.

My View

Ok, we already know what many of the recipients did with 60% of the TARP money; they used it to reward themselves with huge bonuses, and they offer no apologies in doing so. In fact, not only do they not apologize, they have their generals in the news media defiantly defending them. So be it! They’ve proven to us there’s nothing anyone will do about that. So having gotten away with that, they are still refusing to use the TARP money for its intended purpose, with a few exceptions where they’ve made loans to a handful of their closest friends (companies). So what are they doing with the rest of the money? They are using it to shore up their own company by way of purchasing treasury notes in hopes they will still be in business when the next round of bonuses comes due.

By the way. This hearing by the Senate Banking Committee has got to be the least partisan hearing that’s ever been held on Capital Hill. There was one, maybe two, “jabs” of partisanship, but for the most part they all focused on the real issues, not a blame game. A big thanks to both Republicans and Democrats.