Friday, June 12, 2009

Warren: Banks Returning Money Are Still Part of A Troubled Industry

I can't imagine the thinking behind this. We lend them the money and then let them pay it back - before we've fixed the problems that lead to the crash in the first place? And it won't do much for consumers, since half of them are investment banks.

Elizabeth Warren is skeptical, and wants to hear the terms of repayment. She also warns that the stress tests were not as strong as they should have been. Stay tuned:

... The decision to allow the banks to exit the Troubled Asset Relief Program, or TARP, also ushered in a new, and potentially risky, phase of the banking crisis. Letting the lenders out now — earlier than many had envisioned, and without the industry reforms some consider necessary to prevent future crises — raises many sobering questions for policy makers, bankers and taxpayers.

The program was aimed at purchasing assets and equity from banks to strengthen them and encourage them to expand lending during a tightening credit squeeze. But after banks return the TARP money, the administration will forfeit much of its leverage over them. With that loss goes a rare opportunity to overhaul the industry. The administration's ability to push institutions to purge themselves quickly of bad assets and do more to help hard-pressed homeowners will be diminished.

Of even deeper concern is the running trouble inside the banking industry. Despite tentative signs of revival, many banks remain fragile. Four of the nation's five largest lenders, including Citigroup and Bank of America, were not allowed to return their bailout funds.

Some analysts worry that financial institutions that repay bailout money now may turn to Washington again if the economy worsens and losses overwhelm banks. One of the most vexing problems of the credit crisis — how to rid banks of their troubled mortgage investments — remains unresolved.

Which, of course, is why so many experts were urging the administration to nationalize the banks. Those bad mortgages have to be dealt with sooner or later, and the bailout program simply postponed the day of reckoning.

No comments: