The Markets: How the Banks Never Fail to Disappoint

One of the great scandals of the 21st century will be regarding how the banks spent the original TARP money. The lack of transparency from the Fed and the arrogance of the institutions has been breathtaking.

Below is a chart from www.caseyresearch.com which conversely highlights the massive cash injections into the Federal Reserve and the sharp reduction in lending since October 2008.

Lending money without strings is madness. TARP 2.0 must compel the banks to lend directly to small companies and banks. We know that we cannot trust the financial sector to lead us out of the mess that they caused, but they are still, our most efficient distributors of money.

This time though, they have to be completely accountable. Not a penny should be saved to bolster their coffers. It must all be used up in an effort to rescue the worlds economies.

January 20, 2009

The red line shows that, since August, banks have built their cash position in the form of Treasuries, agencies and deposits at the Fed by $865 billion, while their loans and leases have increased by only $325 billion.

In other words, rather than lending the billions of dollars received from the Treasury’s Troubled Asset Relief Program (TARP), as was originally intended, the recipient banks have squirreled away the bailout funds in order to shore up their balance sheets.

Concurrently, the Federal Reserve is exchanging its excess reserves for toxic waste from the financial institutions.

The combined affect is a “circular bailout” with the Treasury borrowing… in order to lend money to banks… that then lend it back by purchasing more Treasuries. Of course, the expense of this entire bailout scheme ultimately falls onto the back of the tax-paying public.