As expected, banks that got taxpayer TARP money so they could start lending aren’t lending–they’re just hoarding the capital to protect against further asset writedowns.
And what did we expect? We’re in the middle of a devastating recession. Most of the loans the banks could make these days would be bad ones–and the reason they need taxpayer money in the first place is that they made so many bad ones. And the rate at which assets are depreciating means that the banks will need every penny just to cover the future holes in their balance sheets (and, of course, to pay bonuses, as at Merrill Lynch).
The bonus payments are outrageous, but it’s time we stopped whining about the lack of lending. It’s also time we stopped denying the reality that most of the major banks are insolvent. If we want our banks to start lending again, we need to do three things:
- Write the banks’ assets down to nuclear winter levels
- Recapitalize the banks, preferably by converting debt to equity (to save the taxpayers hundreds of billions of dollars).
- Address the other side of bank lending…consumer and corporate balance sheets.
So far, the noises out of the Obama administration aren’t encouraging. Summers & Co. are acknowledging that the banks need more capital, but they’re doing everything they can to avoid talking about forcing asset writedowns and temporarily seizing control of the banks. Unfortunately, what this means is that it is likely to take us longer to work our way out of this and more likely that taxpayers will get hosed.
WSJ: 10 of the 13 big beneficiaries of the Treasury Department’s Troubled Asset Relief Program, or TARP, saw their outstanding loan balances decline by a total of about $46 billion, or 1.4%, between the third and fourth quarters of 2008, according to a Wall Street Journal analysis of banks that recently announced their quarterly results.
Those 13 banks have collected the lion’s share of the roughly $200 billion the government has doled out since TARP was launched last October to stabilise financial institutions. Banks reporting declines in outstanding loans range from giants Bank of America Corp. and Citigroup Inc., each of which got $45 billion from the government; to smaller, regional institutions. Just three of the banks reported growth in their loan portfolios: U.S. Bancorp, SunTrust Banks Inc. and BB&T Corp.