Archive for the ‘bank bailout’ Category

Bank Bailout Hasn’t Helped Consumers

Thursday, February 12th, 2009

When the government decided to hand $700 billion to the banks under the Troubled Asset Relief Program, the expectation was that banks would start lending again – and stimulate the economy.

But that hasn’t happened, and since the money was handed over with “no strings attached” there isn’t anything to say they must.

As private citizens and government officials debate over how much control the government should have over bank’s operations – and whether there should have been strings attached – banks are cutting back on lending. Credit lines are being reduced or cancelled, credit card accounts are being closed, and the requirements for getting a loan are becoming tougher.

Of the top 13 largest banks who received a cash injection, 10 reported a drop in lending of 1.4% during the 4th quarter of 2008. Reports are not yet in for the others.

Former Federal Reserve vice-chairman Alan S. Blinder told Bloomberg that financial institutions are “just sitting on the capital” as a way to appear strong to investors. He added that since the money came from the public purse, the public should get something in return – but we are not.

Some experts believe that banks are holding on to this money because they anticipate more defaults in the coming months – on everything from credit cards to home loans. Credit card charge-offs have already risen by 31% and experts predict as many as 8 million foreclosures over the next four years.

Thus, instead of making new loans, banks are using TARP funds to shore up their balance sheets and protect against future losses.

In a Wall Street Journal interview, Duke University finance professor Campbell Harvey summed up what many Americans are thinking with regard to TARP and the bank bailout: “It has failed. Basically we have dropped a huge amount of money… and we have nothing to show for what we actually wanted to happen.”

The bottom line for consumers is this: If you plan to borrow money at any time in the near future, do all in your power to pay down current debt, put money in the bank, and raise your credit scores as high as they’ll go.

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