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Posted by on Feb 3, 2009 in At TMV | 3 comments

Bailout Boomerang

Taxpayer money pouring into banks has not only failed to get loans flowing but even worsened the practices of those that received it.

“The federal government,” the Washington Post reports, “has invested almost $200 billion in U.S. banks over the last three months to spark new lending to consumers and businesses.

“So far, it hasn’t worked. Lending has declined, and banks that got government money on average have reduced lending more sharply than banks that didn’t.”

In the Paulson free-money giveaway, recipients have used government funds to merge with weaker institutions, increase reserves and improve their balance sheets.

But the total volume of loans outstanding from all banks fell about 1 percent, according to Federal Reserve data, declining more than twice as much among those that accepted taxpayer money. Some of the first to get funding, such as Citigroup and J.P. Morgan Chase, have reported the sharpest drops.

An irony that emerges is that depositors are shying away from big banks seen to be in bad shape and, encouraged by the increase in FDIC protection, putting money into weaker institutions that offer higher interest rates.

In the face of this bailout boomerang, members of Congress from both parties are now looking for ways to pressure recipients into making more loans, starting with more closely tracking how banks use the money they get.

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Copyright 2009 The Moderate Voice
  • superdestroyer

    Maybe Congress should have spent more than 15 minutes thinking about the plan before rushing to vote on it. I notice the article tries to place all of the blame on the executive branch trying to carry out the plan but zero blame on the idiots in Congress who rushed to pass the plan.

  • casualobserver

    Come to think of it, did more Democrats vote for it than Republicans?

  • Silhouette

    Well, think about the crew pushing Congress with the fear tactics of “you won’t believe what will happen if you don’t pass this bill…now sign here…and here…intial here…etc.”

    It wasn’t that long ago folks. Did we already forget?

    Thankfully the new Congress can see that banks and the already-rich are hoarders and will not stimulate the economy; whereas if they distributed the wealth amongst the populace in some clever way like…oh….I don’t know…mortgage interest relief for a year or so…the masses would do what they always do: spend like hell and create demand, jobs and an ACTUAL jump start for a dying patient.

    The only question that remains is, will Congress listen to more fear-mongering and lobbying pressure from rich hoarding purchasers of foreign employment and goods or will they listen to the voice of reason.

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