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Published January 28, 2009 at 7:37 AM
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 The banks that received TARP money have been catching a lot of flak from
politicians over the past few months for not using the capital
injections to jump-start lending and instead using the cash to shore up their balance
sheets, buy rivals and even to (ahem) pay bonuses. But all that aside, if
it really is the worst recession since the 1930s, shouldn't banks be
curtailing lending anyway, as they've done in every other recession?
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That's the question that RGE's Global Macro EconoMonitor's blog asks. Blooger Rebecca Wilder writes:
My impression of the TARP re-capitalization program was that of an
emergency government effort to keep banks from being forced to write
down capital losses and risk insolvency. I don't remember reading it as
a "forced lending program." This is a severe recession; it is an
environment where big firms announce 71,400 new job cuts in one day,
and not an environment for new loan origination. That would be
completely irrational.
While an ugly fact for businesses and home buyers, there is an
indisputable logic to it. After all, lending to people that probably
couldn't pay it back is what started this mess in the first place.
However, there is a case to be made for Congress' position that banks
need to start lending that money to the creditworthy. With taxpayer
guarantees the only things propping up institutions like Citigroup Inc., Bank of America Corp. and many others, the argument for pure capitalism rings a bit hollow. And the banks in general have a huge interest in getting the economy started growing again, since it goes
without saying that the sooner this crisis is over the better it will be for everyone. - George White
See Global Macro EconoMonitor post
Comments
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It would have been helpful to decide the purpose of TARP before passing it.
Doesn't the name alone, literally, spell trouble?