Washington Post Exaggerates Theme of TARP Spending Report

The Washington Post titles a report on T.A.R.P. fund spending , "Bailout Overseer Says Banks Misused TARP Funds."

The truth of what the article actually says defies the title, floating up there above reality somewhere between mild hyperbole and boldfaced attention whoring. Nowhere in the article does anyone make the claim that funds were misused, but instead, that accounting for the money needs to be more precise.

Forbes covers the same news with a bit more honesty, and detail:

"According to the study, 83% of those surveyed used TARP infusions for lending purposes, mostly for residential and commercial mortgages. In addition, 43% used it to bolster their capital cushions; 31% spent TARP money on investments; 14% used it to pay down debt and 4% used it to acquire other banks."

(Forbes)

Forbes goes on to mention that the money used to acquire banks was under FDIC direction, and that much of the money spent on investments involved activity with Freddie Mac and Fannie Mae, activity that could "bolster the lending and borrowing" of other banks.

In fact, what we come away with is that nobody has exact figures for what has been spent at individual banks,  and that we should, but also, that much of that activity arguably works toward the goal of making the banks stronger.

The whole idea that the banks should be using the funds for new loans defies rationality when their current roster of assets and loans are still declining in value. Forbes reminds that the TARP facility was established in order to strengthen the banks, not, specifically, to force them to expand lending.

Too many people (media, politicians, casual observers) are pressing to see everything happen at once, and some goals work at cross purposes. A bank cannot right itself, unless it can have profits and increase its capital structure. When Goldman or Bank of America posts gains, in whatever manner, that is actually good and means things are working and they are getting stronger. At some patient point in the future, they will be ready to perform a more core lending function.

Expecting huge increases in lending now should not be an expectation.