Analytical Wealth

Here is a WSJ article discussing the CEO's of banks that refused TARP funds spent their day yesterday. If you recall I suggested the  need to create an oversight board from the private sector to manage the government's investments in the banking sector, provide governance for bailed out companies, etc. The executives of the banks that aren't in trouble and don't need TARP funds seems like a good place to find the talent for the oversight board, as their approach to banking and lending is the one that the executives at the big banks need to emulate. 

It might also be a good idea to carve out a portion of the TARP funds and use it to create a program that functions as a sort of "SBA for Small Banks", with the goal of helping regional/community banks and credit unions expand. The overall idea would be that the taxpayer will get a greater ROI from helping community & regional banks expand, than they will from pouring money into the money pit that is Citigroup, or helping other banks maintain status quo. 

The capital injections could be in the form of low interest loans, or even in the form of a certificates of deposit. The idea would be to provide capital in a way that doesn't come with the TARP stigma, government interference, etc, so as to make the program appealing for the banks that can funnel the most benefits back to the taxpayer. 

Mind you I'm not saying that we should let Citigroup and BOA vanish into the ether, just pointing out that the most efficient way to increase the availability of consumer credit is to direct capital towards banks that have low loan losses and aren't losing money.

All that being said something we have to keep in mind is that lending isn't a business function like providing electricity, and not everyone is credit worthy or can afford as much credit as they want or think they need. It's fatuous to have the credit availability discussion without first looking at lending standards and who is being denied credit, having their credit lines cut, etc, so you can determine whether or not a fair decision was made. It just doesn't make sense to rail against banks for not providing more credit, when easy credit is what caused this crisis in the first place.

You can't help people by providing them with more credit than they can afford, loading consumers down with more debt so they can spend more (over the short-term) is not the solution to our current economic woes.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.