A little late to the debate, Gretchen Morgenson uses her latest column to excoriate financial institutions for not lending out enough of their government dough. No doubt, her next piece will point out that the TARP isn’t even being used to buy troubled assets, even though Hank & Co said it would be.
Her argument basically boils down to: The government said TARP money should be used for lending. It isn’t. Banks are greedy. This greed will hurt the economy. QED.
Her signal evidence: A commercial real estate firm in Texas that’s doing just fine (mmhmm, sure), can’t get a loan from GE Capital (GE), and GE Capital only plans to lend out $50 billion out this quarter, down from $80 billion last quarter. And she notes that Bank of America (BAC) used $7 billion to buy a stake in a Chinese bank — not long after getting $15 billion from the government — and that it’s making fewer loans than it used to.
As she notes, GE Capital (which didn’t actually take TARP money, something that Morgenson admits, but which would seem to undermine that whole point) is still lending, a lot — $50 billion this quarter. So that’s not nothing. Bank of America is lending, too. More importantly, pulling back on lending is exactly what Morgenson and her allied had been (rightly, as it turns out UPDATE: See Larry Ribstein; I was being charitable by suggesting that she was some ahead of the curve on loose lending standards) telling companies to do, for a while now. Somehow the cries of “they have no standards or controls!” and “predatory lenders!” have been replaced with “stingy banks are hording government cash!”. Funny how that got reversed, no?
It’s certainly possible that banks may overshoot and get too strict in terms of lending standards. And when that happens, it’s not hard to imagine how a healthy company in a very sick industry (like real estate) might not get a loan they believe they could easily pay back. But at this point, the priority for government officials is the stabilisation and survival of the whole US banking system — something not easily accomplished by putting a gun to lenders heads while screaming LEND!
OK, that’s an exaggeration. Morgenson isn’t threatening to kill anyone, just torture. She favourably quotes a Dallas money manager:
“The banks that have taken the taxpayer’s money ought to be part of the solution, but they are acting like war profiteers,” Mr. Rowe said. “If I were in charge, I would haul them all down to Gitmo, put them in a room and say, ‘You have used the taxpayer’s money to pervert our objectives. It is morally wrong and we are not going to stand for it.'”
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