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Lend First and Ask Questions Later

January 13, 2009 11:43 AM

Herman ABC News's Charles Herman reports: Neel Kashari, the man charged with running the $700 Troubled Assets Relief Program spoke to the Georgetown University business school. In his prepared speech, Kashkari reviewed the history of TARP and how Treasury had gone from using the money to buy mortgage assets to providing money directly to banks.

“It was clear to Secretary Paulson and Chairman Bernanke that we needed to use the authority and flexibility granted under the law as aggressively as possible to quickly stabilize the system,” he said. “Purchasing equity in healthy banks around the country would be a faster and more direct way to inject much-needed capital into the system and restore confidence compared with asset purchases.” 

He also stressed the money to the banks “was not a bailout of participating banks.  Only healthy, viable banks are eligible for the program and it is designed to generate a positive return to the taxpayer.”

Nm_kashkari_georgetown_090113_main He reminded the audience that the congressionally approved program “is not an economic stimulus plan, nor is it an economic growth plan.  It was one of several initiatives taken by the  federal government to stabilize the financial system, a necessary precondition to any economic recovery.” In response to recent criticism from Congress and the oversight panel and the general public, he said, “People recently have begun to ask what the banks are doing with the money we’ve invested in them.

We designed important features into our investment contracts to limit what banks can do with the money:  One, we restricted dividend increases and share repurchases and, two, placed restrictions on executive compensation.” He said, “Banks are in the business of lending,  and they will provide credit to sound borrowers whenever possible. They may also use the capital to absorb losses as part of loan write-downs and restructurings.” “People then ask," he said rhethorically,  "When will we see banks making new loans?” and gave a rather nonsequitor answer to his own question,  “It is important to note that over $60 of the $250 billion CPP [the program that provided money to the banks] has yet to be received by the banks.”

He also stressed, “We absolutely need our banks to continue to make credit available,” but went on to say, “We must not attempt to force them to make loans whose risks they are not comfortable with.  Bad lending practices were at the root cause of this crisis.  Returning to those practices will not help end this financial turmoil.” Finally, in his attempt to answer how Treasury will track the money banks lend, he said, “Treasury has been working with the banking regulators to design a program to measure the activities of banks that have received TARP capital.”  In other words, Treasury is still in the process of trying to figure out just how to do that.

January 13, 2009 | Permalink | User Comments (11)

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I really wonder what is going to happen to our currency in a couple of years from now.

Posted by: Huh | Jan 13, 2009 12:16:28 PM

Sure. The money is for health banks. Healthy banks like Citi. Pathetic. If they were healthy, then they didn't need it in the first place. TARP is Black Hole economics. Throw it into the hole and run.

Posted by: anak | Jan 13, 2009 1:29:42 PM

Posted by: Mickey | Jan 13, 2009 1:33:45 PM

Tuesday, January 13, 2009
It is excellent that ABC News offers 'continuing' coverage on the TARP as we sometimes tend to lose track of programs once they're a few months old. TARP is still evolving.

Posted by: David Hanna | Jan 13, 2009 2:21:14 PM

Mr Kashari's comments presuppose that the TARP initiative has produced marked improvements in banks' financial conditions or that listeners are idiots. Since the first assumption is patently false, it must be the second.

It is mind-boggling that Treasury Department officials can continue to make such ludicrous statements -- and that reasonably intelligent Americans will allow them to get away with this.

The Treasury Secretary lied to Congress to get the TARP funds. The money has not been spent on the purpose for which the funds were granted. There is no evidence that what the Treasury has done with the TARP funds has lessened the nation's economic crisis. And the Treasury continues to lie about what it is doing.

Someone has to say enough.

Posted by: Jim Wells | Jan 13, 2009 2:41:20 PM

Mickey thanks

Posted by: Huh | Jan 13, 2009 4:48:58 PM

I still can't believe they put this guy in charge of the bailout. I don't care how smart he is. You can't discount wisdom that comes with age. No pun intended.

Posted by: JOE | Jan 13, 2009 11:40:33 PM

Mickey - interesting video. Proves what many have been saying. As for this "kid" in charge of the TARP fund, he is just a mouthpiece doing what Paulsen and Bernanke want. They are in charge and making sure their friends are profiting.

Posted by: kay | Jan 14, 2009 9:21:26 AM

How did this kid get so high up the ladder? Oh, I know, he talks down to people just like Paulson. Two of a kind

Posted by: Judith | Jan 14, 2009 11:12:36 AM

The clear crisis is, the future of their gigs as 'THE ECONOMY' runners.

Remember when the Berlin Wall went up in 1989?

Me neither, thought it fell. But, centrally planned command 'THE ECONOMY' running is currently all the vogue in The Tribe.

FNMA, SEC EXEMPT, AGENCY RATED , used to brush aside 50 sets of more stringent state banking and lending regulations...but 'the free market did it! Not enough federal regulation did it!'

Plus, what was absolutely necessary in order to creeate the financial engineering genius of 'securitized mortgage bundles?' SEC EXEMPT, AGENCY RATED ... federal monopolies with guns.

So, now we send in the arsonists to put out the constructivist fire they started, but not content with that folly, we first hand them all Exxon Speedpasses.

We love our monopolists with guns. They may be fascists, but they're our fascists.

Posted by: FredianoB | Jan 17, 2009 4:10:07 PM

If only they weren't all severely reducing the amount of credit available to my small business. AMEX completely went out of small business lending.

Posted by: Timber | Jan 30, 2009 11:55:54 AM

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