The Bank Blame Game Again

We’re back doing the bank blame game, and I really wish it would stop. Can’t we go back to beating up on credit rating agencies? That was more pleasurable, and much cheaper. We didn’t have to spend billions to feel bad — we could just cold-cock them on principle.

Anyway, news tonight that Treausury will start demanding monthly reports from banks on the receiving end of TARP monies is fine and overdue, but it is clear that it will quickly turn into a lending quota system. How much did you lend this month? Why is it less than last month? And so on.

The trouble is, as I’ve written here many times, the bank equity injections (that expression really needs to be outlawed) were about an insolvency problem at banks. Forcing them to lend more aggressively than they’d like to in a weak market to consumer and businesses all-too-likely to default is dumb. Just look at the repeat rate for renegotiated mortgages to get a grounded sense of what is going on in lending markets.

I’m not saying that banks shouldn’t be lending, of course. That’s silly, and I wish all the anti-bank nutters would find something else to rail against, like maybe August. I’m simply saying that forcing marginally solvent banks, still encumbered by toxic assets, to lend into a weakening economy only guarantees that more money will be needed sooner to bail them out again. Then again, maybe parading back to the precipice is the fastest way to nationalize the lot of them and get it over with already.

Related posts:

  1. Bank Bailouts and the Loans Myth
  2. The Bank Capital Mirage
  3. Citigroup: Bad Bank to Create Bad Bank Incubator
  4. The Blame Game Part I: Short-Sellers are Witches
  5. Rogue Traders, Knave Traders, and the Subprime Blame Game