Transparency In Lending

I understand Ed's point here. I've probably had this debate more often with friends than any other as regards today's economic situation. But the banks are not the car companies. We already know who they are and there's good reason for non-disclosure in the case of banks, as much as it rubs against principles, including my own.

Lenders want to know how borrowers will spend the money, but they don’t have the right in most circumstances to demand an accounting of the money after they lend it. However, given the public nature of the money and their pleadings for it, the banks should be offering transparency rather than opacity.

The government is trying to ensure that these banks remain solvent. If they started publishing a list as they did it, there's a very real chance releasing such a listing would cause a sort of a mini-run on certain banks totally negating the cash injection, if not worse.

It's a double-edged sword. Moving the FDIC limit up to $250 k was an acknowledgment of just how much they're concerned about public reaction to all this with the banks. It isn't a sound move in a good government sense. But it's probably the more prudent one. Giving someone money in a manner that drains them of reserves at the same time would indeed be a waste of taxpayer money.

Comments

[AJ LYnch]

If they get away with not disclosing the companies that got TARP money, it will be like Oceans 11 plot.

Re $250K FDIC limit, they should have done that years ago. It has been $100K forever, why didn't Congress raise it due to inflation impact over 50 years? Because Congress is out of touch with the average American that is why.

Fo the same reason, it took them more than 30 years to increase the IRA limit above $2,000.

[aporitic]

Don't forget, alot of this money went to the banks in the form of equity infusions (take our money, give us stock). But those equity infusions came with strings attached -- Treasury is giving cash to stronger banks and requiring them to use it to buy weaker banks on the theory that the better-managed banks will do a better job than the government of working through this crises. What's more, if you can save a weak bank -- even if it means selling it to a strong bank to do so -- you can save more of the depositors' assets than if you wait for it to fail and FDIC has to step in. Saving asstes for depositors is a worthwhile goal both in terms of how it affects the economy and just plain human decency.

The banks won't talk about this for two reasons: first (and only a minor reason) Treasury/FDIC won't let them; the info about which banks are weak enogh to be targeted for takeover is a VERY closely guarded secret. Second, they don't want to tank their deals before they happen; letting it slip that a given bank was tartgeted for takeover would destroy that bank for sure, making it unlikely that the takeover would save any meaningful assets or accomplish any good in the broader scheme of things.

[old trooper]

All well and good but the Financials are not getting the Cash Infusion back into circulation to keep small businesses viable. There lies the rub and the root of the Consumer Confidence problem. Sitting on the Taxpayer cash does not keep folks from losing jobs when small business does not have the resources to keep folks employed in the goods & services industry that is the necessary for folks that need to work for a living to provide goods & services.

In the broader scheme of things, Banks sitting on assets does nothing to improve the econony. It is a dog in the manger approach that only serves Financial Execs or Stockholders that produce nothing.
Unemployed folks cannot buy autos, pay mortgages or produce goods. They can become a burden by collecting unemployment and foodstamps as the middle class faces extinction.

A little common sense economics needs to be applied now or the Free Market will become History.

[Hermit Dave]

The reason there is no appreciable new lending is also the reason Treasury doesn't want to disclose the details. It's because all the capital is being used to deleverage and recapitalize the banks' balance sheets.

When you're leveraged 12-1 and you have to eat more than 1/12 of your investments, you're functionally bankrupt. This is the state of much of the banking industry. Plus, you're now overleveraged, and well below capital requirements. Thus, all the cash you get is being used strictly to repair your balance sheet and bring your leverage back in line with regulatory guidelines. Of course there's no new lending.

That's what Treasury doesn't want you to know.