Major misallocation of TARP money?

[DanS]

IIUC (perhaps not well), the ones holding the toxic paper were the holding companies. As such, putting equity into the holding companies stabilized the holding companies.

Pushing the equity down to the banks is important only if you thought that the purpose of the equity injections was to increase lending. I don't recall that Bush ever said that was a purpose of the injections. It's convenient politically to set Bush up as the straw man, as the NYT commentator has done.

Unfortunately, we are worse credits now than we were a year ago. We could lose our jobs at a much higher rate than a year ago. We aren't getting raises at the rate we were a year ago. Our real estate is more underwater than a year ago. Asking a bank to increase lending under such circumstances seems odd. Besides, we shouldn't be borrowing more. We should be borrowing less. The economy needs to adjust.

[Kidlicious]

We have it because it was one of the lynchpins preventing a national bank collapse (see, 1930). Sadly, we have been relaxing that rule further and further, and that relaxing was one of the factors leading up to the current situation.

The idea was that banks should not be national banks, because then a single bank collapsing can cause the whole national banking system to collapse out of fear. If we had state-based banks, we wouldn't have needed all this federal bailout money, because no bank would have been too big to let fail...

Too bad the current generation doesn't believe in learning from the mistakes of the past, and instead prefers to make them for themselves.

It was also to prevent competition among banks, and increase their profits. The idea is that more profitable banks are more stable. The government and financial system go to great efforts to make banks very profitable.

[chequita guevara]

Then would it not have been better for the government to sieze them or set up its own bank if it wants to control the lending decisions of the banks?

Yes.

I still wonder why people are surprised that a government that operates in the interests of the capitalist ruling class is handing over hundreds of billions of dollars to the capitalist class, no questions asked. It's like you actually believe this is a government of the people, by the people, and for the people.

[Agathon]

It's like you actually believe this is a government of the people, by the people, and for the people.

Kinda makes me want to build a shack in the woods and wait it out there for the next five years.

[Blaupanzer]

The article is asking for directed loans to the banks on the assumption that the goal is more consumer/business lending. The collapse is not due to that lending directly but to the creation of toxic assets based on that lending (especially mortgages). The total value of capital in circulation rose by $70 trillion in about 10 years. The collapse has liquidated about $30 trillion so far. As more of this goes up in smoke, the Feds wish to prevent the failure of any institutions "to big to fail." Allowing these institutions to grow in the first place was what was stupid. The FDIC payments or a minor injection of capital can assist the local economy when a limited bank fails. These big guys are too top heavy for that to work.

[chequita guevara]

Nationalize the banks! If we have to pay for the bad loans anyway, **** it, let's take the good ones too!

[Darius871]

but that'd be teh SOCIALISM OMFG!!!!11one

[Thue]

IIUC (perhaps not well), the ones holding the toxic paper were the holding companies. As such, putting equity into the holding companies stabilized the holding companies.

I admit that I have no knowledge about how the whole holding-company structure works, but if the holding companies were the ones having the problem, and the banks were fine, why not just let the holding companies go bankrupt?

Anyway, the article says that the holding companies are using part of the money to invest in other companies, which as I understand it have nothing to do with the purpose of the TARP.

Pushing the equity down to the banks is important only if you thought that the purpose of the equity injections was to increase lending. I don't recall that Bush ever said that was a purpose of the injections. It's convenient politically to set Bush up as the straw man, as the NYT commentator has done.

Unfortunately, we are worse credits now than we were a year ago. We could lose our jobs at a much higher rate than a year ago. We aren't getting raises at the rate we were a year ago. Our real estate is more underwater than a year ago. Asking a bank to increase lending under such circumstances seems odd. Besides, we shouldn't be borrowing more. We should be borrowing less. The economy needs to adjust.

According to http://en.wikipedia.org/wiki/Trouble...Relief_Program :

Another important goal of TARP is to encourage banks to resume lending again at levels seen before the crisis, both to each other and to consumers and businesses.

Almost no matter how bad the economy gets, there will still be some basically healthy lenders who should have access to loans. My understanding is that these loans are not always being given right now. It is perfectly reasonable to expect banks to give those loans.