But why should they LEND it?!

Or at least that's what Rebecca Wilder says

TARP definitely has its problems, but it was developed to prevent a systemic crisis, and not to force lending. Were it not for TARP, more banks may have failed, and lending would be negligible, if not falling precipitously.

She then goes on to say that:

A necessary condition for an economic recovery is not a fully functioning credit system, but rather the other way around. In order for the credit system to heal, it must be on firm economic ground.

So we have a bit of a chicken-and-egg scenario...we really need a strong economy before banks are willing to hand out money. That's why these banks aren't lending out money, because the economy sucks and they will likely lose cash.

Yet, how can we have an economic recovery when people can't even get credit? It's no surprise that automakers were pounded all through 2008 and housing similarly suffered: both have a large chunk of their customers relying on credit to afford product, and with credit markets shutting down, there was no way to buy product. For a long time, the rest of the economy was chugging along just fine while autos and housing and financials were getting absolutely pounded.

If the crisis in the economy is really a crisis of confidence, then perhaps that means the banks are under-estimating the returns they will get on new loans...forcing them to do so and then a realization that "hey, it ain't so bad" will convince other people to dive into the credit pool and we'll start getting the economy back on track.


Of course, this isn't really possible if the banks are facing massive losses. But if the banks are insolvent even after a massive $350 billion capital infusion, then:
A. The government should not be subsidizing banks buying other financial service companies. So far, 2008 and 2009 look like a movie called "How Bank of America and JP Morgan convinced the government to help them buy every bank in the US"
B. The banks should be nationalized out-right so we can essentially hit the "reset" button, without massive giveaways to the shareholders and creditors.





Either way, giving banks hundreds of billions of dollars just to sit on them seems, to me anyways, like a very bad policy.