Bailout Banks Lending Less than Other Banks

Wednesday, February 04, 2009

Think back just a few months ago when President Bush, his Secretary of the Treasury, Henry Paulson, and Ben Bernanke, the head of the Federal Reserve, threw the nation into a panic because the entire economy was days away from collapse. Fortunately, they had a solution: spend $700 billion so that banks and other financial institutions could begin loaning money again. Homeowners could get mortgages, Americans could buy cars, and we would all live happily ever after. Democratic and Republican members of Congress joined together and approved the huge bailout. But since then, it hasn’t turned out the way they said it would. Although $300 billion has already flowed out of the Troubled Asset Relief Program (TARP), lending is actually down. In fact, banks that received bailout funds have reduced lending even more than banks that didn’t receive funds. Part of the problem is that the biggest chunks of the TARP money have gone to the banks that were in the worst trouble. Also, some banks have used their windfalls to buy out other banks or to create a cushion to fall back on in case the economy turns even worse. Now Americans will have to wait to see what President Obama and his Secretary of the Treasury, Timothy Geithner, plan to do with the remaining $350 billion of TARP funds.

Despite Federal Aid, Many Banks Fail to Revive Lending (by Binyamin Appelbaum, Washington Post)


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