Friday, October 17, 2008

Banks Are Likely to Hold Tight to Bailout Money


Don't expect banks to start deploying the cash they've received from the U.S. government anytime soon. That's the takeaway from an article this morning in the New York Times. In other words, if you're waiting for the banking system to step up its credit-card lending, for example, because of the new cash infusion, don't hold your breath.

From the Times story: Banks Are Likely to Hold Tight to Bailout Money

"But Treasury Secretary Henry M. Paulson Jr. is urging them to use their new capital soon. On Monday, Mr. Paulson unveiled plans to provide $125 billion to nine banks on terms that were more favorable than they would have received in the marketplace. The government, however, has offered no written requirements about how or when the banks must use the money."

And with no written requirements, that means banks can sit on the cash and do what they'd like. If you're a troubled bank, for example, you'll be reticent about redeploying that cash. You're more likely going to sit on it.

Another quote:

“It’s clear that the government would like us to use the capital,” Mr. Dimon said on a conference call with analysts on Wednesday. “If you are a bank that is filling a hole, you obviously can’t do that.”

And which bank couldn't claim that? I imagine every bank in this country is filling holes. No?

My guess is that the bailout money won't do a lot for lending. Instead, it will be used to shore up ailing balance sheets.

24 comments:

Far Left Texas said...

Let me see if I understand this:

A - Banks were scared to lend money so the government decided to give them $700B so they could start lending again.

B - The banks received the money and they are still scared to lend the money.

C - Nobody made it a condition that the banks must lend if they were to partake of the bailout bucks?

My mini editorial for the day - I wonder if my grand kids will see the time come when the USA is no longer an economic factor in the world's economy. At what point are so many financial mistakes made that a country cannot recover from them?

GlobCredit.com said...

FLT, pretty amazing, eh?

Would not lend because they were too scared. Yes.

Banks still won't lend because they have other things to worry about. And because they are still too scared. Yes.

No requirements that they had to lend. Yep.

We having fun yet?

Anonymous said...

FLT, that sounds about right. Oh....but they were able to negotiate in tax breaks for wooden arrows!

GlobCredit.com said...

Anon, LOL. I will have to check that out!

Josh said...

What this whole situation really highlights is the utter greed of these banks (and the people that run them) & how out of control the whole system is.

Josh said...

(Hey! I just noticed there's a subscribe button next to the "comment field" - Cool!)

GlobCredit.com said...

The more things change, the more they stay the same.

That's all I am saying.

GlobCredit.com said...

Josh, yes. You can subscribe to comments using that subscribe, unsubscribe button just below the comment box.

GlobCredit.com said...

It's my understanding that the subscribe button is not yet visible for everyone.

When it is available, you'll be able to subscribe to particular posts. If you wanted to subscribe to posts just in this thread, for example, you would click the link that is over on the right hand side that says "subscribe."

For my readers who do not yet see it, you eventually will.

Josh said...

It's only visible to those logged into Google, I assume?

GlobCredit.com said...

Ahh. That could be it, Josh. Blogger technology being fed through Google. That would be my guess.

Anonymous said...

Josh, yeah, that's it. That feature can only be used by people who are signed into their Google accounts.

Thanks!

Creditmattersblog posting as Anon

Jake said...

If someone gave you a big chunk of cash with no rules why on earth risk it considering what today's economy looks like? No way!!! You'd stay liquid, ride the storm out and wait for consumer confidence to rebound naturally.

The only surprise is that some people actually were naive enough to believe this bailout would help them.

My guess is that the last disbursement will have some regulations regarding mortgage lending and won't help people in crisis right now.

GlobCredit.com said...

Yep. Looks like the consumer got sandbagged again.

Bank welfare is alive and well.

azntg said...

Very reassuring to hear!

So, our good ol' big banks (too big to fail) will gladly take our involuntary gift (which was supposed to be used for OUR benefit) and hoard it for themselves!

Did anyone else hear them shout "Thanks for the free money, suckers!"???

GlobCredit.com said...

I heard them shout it, Jim.

GoldenDomer said...

Crooks giving bigger crooks all the weight and support of the federal government... and the tax payers will be the victims for years to come.

Just my take as a government employee.

GlobCredit.com said...

GD, it's a damn crime. Period. But I am not surprised.

Anonymous said...

Yep arrows got a tax break in the bailout - so did bicycle commuters. http://www.bicycleretailer.com/news/newsDetail/1878.html

Lots of hogs got to line up at the trough.

FLT - Look for Brazil to be a first world country in the next 15 years. Huge investments in technology for schools (OLPC proram). Already energy independent with a mainly renewable Bio-fuel. Lots of other natural resources. Heck they even have a functioning computerized voting system in place for national elections.

GlobCredit.com said...

Anon, thanks for the link. Wow.

Jake said...

Think of is as reparations... for multimillionaires.

GlobCredit.com said...

Dang that Bob Wang!

jazzyjohn (from CB) said...

Hey CMman, first time/long time!

Gotta say what a *priceless* pic that is of Paulson and Bernanke...

Have something I may need to email you about later, if that's OK.

GlobCredit.com said...

Jazzy, feel free to email me at plastic101 at gmail.com.

Regarding Paulson and Bernanke, for everything else there is MasterCard.

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