A financial pundit defends the stashing of bailout money.
Bank of America is receiving additional bailout money this week along with other financial institutions. And just like any other federal project, the Troubled Asset Relief Program has not been spared from the scathing observations by the public. Allegations of misusing the funds for capitalization and acquisition of other smaller banks instead of loaning it to customers are sparking heated debates between the FDIC and the Treasury. In a matter of days, other parties have involved themselves including the National Association of Realtors. Apparently, this issue was analyzed by many and we’ve found one column that takes the banks’ actions on a different note.
Jack Guttentag in a Yahoo Finance’s article, “Maybe the Banks Should Be “Hoarding” Money” writes, “My view of government intent is that the capital infusions were meant to be “hoarded,” defining that word as adding to the firm’s capital rather than adding to its loans… My view of government intent is that the capital infusions were meant to be “hoarded,” defining that word as adding to the firm’s capital rather than adding to its loans.” Guttentag could mean “achtung” this time.
He believes that other functions of the banks could be affected once the entire bailout money is channeled to loans solely. Guttentag defends on hoarding the fund since many institutions may face tougher financial setbacks in the coming months. If this is so, then it highly defeats the purpose of the TARP. The private sector has to take responsibility with the taxpayers’ money. Their greed as manifested in the subprime mortgage market has become a social expense in the form of taxes. With that, the decision of the Associated Press to demand a report from $1 billion-recipients on the usage of the fund is correct. Guttentag should not question it in any way.
After their exposure to toxic mortgages and eventually losing their balance, banks need to regain public trust by establishing transparency especially with the “loaned” money from the government. Still, if Guttentag insists then can he answer why it’s the responsibility of the public to succor private firms from their mismanagement in the first place? Obviously his arguments for hoarding remain weak.