RebelCapitalist: Financial Information for the Rest of Us

Banks Are Not Lending. No Surprise.

Apr 20, 2009 | By: Mr_Blue | Comments | Permalink | Tags: wall street bailout, tarp

Wall Street Journal performed an analysis of Treasury Department data on bank lending. What they found is frustrating but not surprising? The analysis is not surprising because many big banks, particularly financial conglomerates like Citigroup and Bank of America, are for practical purposes “insolvent” - meaning their liabilities are greater than the value of their assets. They cannot lend because they can’t afford to - they are broke.

Wall Street Journal analysis found that:

...the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program.
The total dollar amount of new loans declined in three of the four months the government has reported this data.

The biggest recipients of taxpayer money under TARP are: Bank of America, Citigroup, JP Morgan Chase and Wells Fargo (for complete list click here).

We were told by Treasury Department that purpose of $700 billion money transfer from taxpayers to banks was so that banks can start lending again. Well guess what they didn’t. They used taxpayer money to plug other gaps and cover losses in part of their companies. They didn’t care about lending. It was cheap capital dollars via taxpayers with no strict conditions or rules. They made a business decision but at our expense.

Pumping hundreds of billions of dollars is not going to solve the basic problem. Many of these financial conglomerates are broke - insolvent. It is past time that we recognize that and address the problem of insolvent financial conglomerates and stop pumping billions of dollars into financial conglomerates that should be liquidated and not propped up with our money.

We hear a lot about financial conglomerates are “too big to fail”. We need to get over this fear of “too big to fail” and figure out how best to break-up those financial conglomerates that are insolvent. This will go a long way to restoring confidence and trust in the markets and economy.