The government’s latest bailout plan is focused on handing banks scads of money so they can start lending again. But as today’s New York Times reports, that second part --
the lending -- doesn’t look like it’s going to happen anytime soon.The Treasury Department doesn’t actually require the banks to do anything with the money. “There is no express statutory requirement that says you must make this amount of loans,” John Dugan, a Treasury official, told the Times. Instead, the main leverage will be guilt-tripping. Or as Dugan put it, the banks decisions will be subject “to the court of public opinion.”
“It is the government’s responsibility to set the terms and conditions on this money,” said David Walker, the former federal comptroller general. “This is the people’s money. They’re giving it out with no rules.”While the banks no doubt would love to help the economy and lend out the money, they also need to shore up their own bottom lines, since the banks have been booking huge losses. So rather than lending the money out as the government envisions (and thus helping to unfreeze the credit markets), the banks have another plan in mind for the moment: hoard the cash.
http://www.propublica.org/article/banks-hoarding-bailout-money-1017/
