Paulson Aims to Loosen Credit
With $700 billion in TARP (Troubled Asset Relief Program) funds approved to be spent in a bailout effort, and many in line with their hands out, Secretary Hank Paulson has decided to invest first in financial institutions that issue student, auto, and credit card loans in an effort to jump start lending, according to a recent Washington Post article. While many in government were hoping money would be offered directly to homeowners facing foreclosure, Paulson believes capitalizing the banks will do more to help homeowners than putting the money directly into their hands. The idea is that investment in banks will have a greater, more immediate impact on the economy by increasing the amount of affordable loans available to individuals and businesses.
In testimony yesterday, Paulson also said he was not supporting a direct bailout of the ailing “Big Three” auto industries at this time, insisting, “Objectives in asking Congress for a financial rescue package were to first stabilize a financial system on the verge of collapse, and then to get lending going again to support the American people and businesses.” For now the administration is taking a wait and see approach and watching for lending standards to loosen and for the money to flow again; it seems there are some signs of improvement. Chairman Ben Bernanke testified yesterday, according to USA Today, that “there are some signs that credit markets, while still quite strained, are improving.”
In fact, according to a recent article by Glenn Adams in Forbes Magazine, Maine banks and credit unions have announced that they are healthy and ready to lend. Mark Walker, of the Maine Bankers Association, was quoted as saying, “All of our banks are well-capitalized, safe and sound, and willing and able to lend.”
Hopefully a positive trend will develop throughout the country, and we will see credit continue to loosen through federal investment in our financial institutions. In the meantime, Paulson has chosen to wait and remain flexible with the remaining $350 billion of TARP funds yet to be allocated for relief.
