An amazing bit of news in The New York Times editorial page today. Turns out that all that TARP money that was supposed to go to the banks is not going to the banks at all; it’s going to the holding companies that own the banks . . . among other commercial enterprises. And it further turns out that of the $90 billion those holding companies have received, only $15 billion has gone to their subsidiary banks.
So what we’ve got here, essentially, is a government program to subsidize the economic losses of bank owners. It’s as if we tried to save GM by sending checks to GM stockholders. Would they plow that money into GM? If they think nationalization is coming, no. If they think that GM is probably doomed in the long run, no. If they think that more direct federal help will be forthcoming, then no — they’d pocket the cash and let the taxpayer recapitalize the company later.
How is it that this crucial bit of fact about the true nature of the TARP has eluded reporters, politicians, and pundits for so long? The lack of transparency about how this money is actually being spent is probably one reason. Chalk up another debit on the Bush administration.
For the record, I don’t support bailing out the holding companies or the banks. But if we are going to undertake “Operation Bank Bailout,” it would be nice if federal policy would actually be executed as promised. Bailing out bank owners is even less defensible.