TARP Didn't Work...Are We Really That Surprised?

No way...way...no way...way!

Congress allocated at least $700 billion to a Treasury slush fund under the argument that such a move would loosen the credit markets.  So far, banks love the money, but haven't loosened credit at all.  Except for home refinancing, the level of lending continues to drop, even with banks returning to solvency and looking forward to unloading toxic assets in the near future:

Lending by the nation's largest banks fell 6 percent in February from the previous month, continuing a downward trend that began in October with the financial crisis, according to data published yesterday by the Treasury Department.

The 21 banks in the survey have received more than $211 billion in federal funding to support new lending with the aim of stimulating the economy. The money has not accomplished its purpose.

The banks reported a 24 percent decline in the dollar value of business lending and a similar drop in student, auto and credit card lending. All told, the value of the banks' new loans in February was down by about $16 billion from January.

The only increases were in mortgage lending. Government efforts to hold down interest rates on mortgage loans have driven a refinancing boom. The two largest lenders, Wells Fargo and Bank of America, reported a combined 35 percent jump in mortgage lending from January.

Out of $700 billion in the slush fund, Treasury only has $35 billion left.  This report puts the cash stuck into banks at a mere $211 billion.  Not every bank is accounted for in this survey, but the TARP funds went mostly to the more critical banks in the lending industry.  What happened to the other $450 billion?  AIG got a big chunk of it –more than $150 billion — but a lot of that went to banks as well in a Treasury shell game.

This may not be all bad news, of course.  The entire problem started with bad loans being pushed by the government, which mandated that they all be securitized through Fannie Mae and Freddie Mac to offload the risk to investors.  We don't need to start a new class of bad loans and toxic securities.  The fact that lenders have tightened their practices should be seen as a good sign.

Obviously, though, banks have not responded to direct liquidity injections as Henry Paulson and Tim Geithner predicted when Congress shelled out the money.  Most of them now want to give the money back — now that they've become profitable again by watching their lending habits.  Had Treasury stuck to the plan that Congress actually authorized, which was a mechanism to restore value to the toxic assets, we may have already fixed the actual problem plaguing the economy without wasting almost a trillion dollars on nationalization of private industry.

But then again, that wouldn't have allowed those in charge to follow their pet principle of never wasting a good crisis, would it?

As predicted, and as warned.  Bush, Obama, and Congress literally flushed $700 billion of taxpayer money down the crapper because they lost their heads and got caught up in the hype rather than looking at the evidence and history, and acting from a position of principled leadership.  This is precisely why our elected leaders in Washington cannot be trusted to do what's in the best interests of the American people anymore.

Don't forget this...your time will come in 2010.  VOTE.  THEM.  HOME.

There's my two cents.