Fallout: The Financial Crisis

Treasury plans to measure lending

Steve Henn Jan 13, 2009
HTML EMBED:
COPY
Fallout: The Financial Crisis

Treasury plans to measure lending

Steve Henn Jan 13, 2009
HTML EMBED:
COPY

TEXT OF STORY

SCOTT JAGOW: Bernanke’s plan calls for the government to set up these bad banks. But the Financial Times says Citigroup is planning to create its own bad bank, where it can store its toxic investments.

If the government’s even going to consider giving banks more money, it’d be a good idea to figure out what’s going on with the money they’ve already gotten — $189 billion went to more than 250 banks. Let’s hear about tracking that money from Marketplace’s Steve Henn.


STEVE HENN: When the U.S. Treasury started making big investments in banks it had a simple goal: to increase lending. This is Neel Kashkari, the assistant secretary of the Treasury last fall, explaining why so much money was going to supposedly healthy banks.

NEEL KASHKARI: The answer is, if we have a dollar and we give this dollar to a healthy bank, that healthy bank is much more likely to turn around and extend credit with that same dollar.

But after getting almost $200 billion in taxpayers’ money, many banks still aren’t lending. And today Kashkari tried to explain why.

KASHKARI: As long as confidence remains low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans.

In a speech today, Kashkari said the Treasury Department will begin comparing lending levels at banks that got government money with similar banks that didn’t.

But Vincent Reinhart, a former Fed economist now at the American Enterprise Institute, says measuring the effect of government money on a bank’s lending is almost impossible.

VINCENT REINHART: The management of the bank knows a lot more about the bank than you do. And once you give them the capital it’s very hard to know what they did with it.

Kashkari says the Treasury Department will rely on quarterly reports regulators already require. But Reinhart says those reports are notoriously unreliable.

So if you are asking yourself whether the American public is getting what it paid for in the banking bailout, Reinhart says you may as well just take a step back, look at the economy, and decide for yourself.

In Washington, I’m Steve Henn for Marketplace.


Audio provided by CQ Transcriptions/Morningside Partners.

As a nonprofit news organization, our future depends on listeners like you who believe in the power of public service journalism.

Your investment in Marketplace helps us remain paywall-free and ensures everyone has access to trustworthy, unbiased news and information, regardless of their ability to pay.

Donate today — in any amount — to become a Marketplace Investor. Now more than ever, your commitment makes a difference.

Marketplace + Caffeine = daily dose of awesome!

Your donation today gets you two things to keep you going – your daily news fix and your new favorite mug.