Lenders Saying No to TARP Bailout Funds
As the economy began to take a nose dive toward the end of last year, the Bush Administration's grand plan was to siphon off chunks of money to major U.S. banks, which they believed would unfreeze the credit markets and naturally allow the banks to lend more money to consumers, small businesses and home buyers. And then viola…the country's housing market and the U.S. economy would be resuscitated! Yes?
The dream scenario has been just that – a dream! Many banks are not lending out the money as originally envisioned. According to several news reports, some companies that received the bailout money have used the funds to acquire new companies or fund executive compensation and bonuses. And now, many banks are refusing to take the government's dinero – wincing at the potential government requirements that will likely accompany any bailout program funds.
Thanks but no thanks
According to the Wall Street Journal, new proposals from the U.S. House would bar TARP recipients from using any of the money to acquire other banks, and would allow a government representative to sit in on meetings of the board.
Many banks are raising concerns about the effectiveness of the bailout program. Others apply for the funds, but subsequently reject them – a move thought to calm their investor's fears that their institutions are having solvency issues. To date, the U.S. Treasury Department has doled out $194.2 billion in TARP money to 317 banks and other institutions in 43 states, plus Puerto Rico. More applications are pending.
Officials in the Treasury predict about one-fourth of the estimated 8,000 banks across the U.S. will apply for bailout funds, reported the Journal. And yet, funds are still virtually frozen for many residential and small business borrowers, and the U.S. housing market has yet to recover.
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