TARP Bailout Funds: How Have Banks Used Taxpayers’ Money?

There seems to be some good news with regards to those banks that have received TARP bailout funds. A survey they took reveals that at least 80% of these American banks are now reaping the benefits of the money they’ve borrowed. They’ve been able to increase lending activities even as the economic slump has deepened.

The survey was performed by those overseeing the U.S. Treasury’s Troubled Asset Relief Program (TARP), whose funds currently stand at $700 billion. The survey found that almost 40% of 360 banks that were reviewed have taken steps to better deal with unexpected losses. I found it interesting that about a third of these banks and institutions put some of their borrowed funds into Fannie Mae and Freddie Mac. What do you think of the fact that these banks have decided to invest this money in mortgage backed securities?

So here’s the thing, we all have been wondering what banks have been doing with the bailouts they’ve received so far. After all, the government has a history of having a hard time pinning down how bailouts have been used by these recipient institutions. Remember just how cagey some of these banks have been late last year when the subprime and credit crisis came to a head?

The information we’re gathering from the survey is therefore welcome news to me. I want to know where OUR money (taxpayers’ money) is going. And good thing: this survey obliges. Here are the results of this review:

Banks With TARP Bailout Funds Surveyed: The Results!

• 360 banks were surveyed and 83% of the respondents (or 300) used their bailout funds for lending purposes.
• 104 institutions (29%) applied their funds to residential loans.
• 64 institutions (18%) used their funds for commercial mortgages.
• 61 banks (17%) applied the money to consumer lines of credit, car loans and other personal loans.
• 52 banks (14%) applied TARP money to existing debt.
• 15 banks (4%) used bailout funds for acquisitions; that is, to take over failing banks as recommended by the Federal Deposit Insurance Corp. (FDIC), which is the regulating body that oversees the situation for troubled banks.

And here’s the kicker: most recipient banks mixed TARP funds (that’s our money!) with the rest of their capital and assets. Oh yeah, so that’s why accounting for it has become so tough! What a great excuse.

My Position On Bailing Out Banks

So what do you think of how our banks are managing taxpayers’ money? Are you for or against the bailouts? I’ve always been fiscally conservative, so I’ve always leaned towards being stingy about lending money to these banks. Late last year, as we ordinary citizens received reports of banks beginning to fail and requiring bailouts from the government for their survival, I was one of those people who felt uncomfortable going the bailout route. I wanted the chips to fall where they may, and if a bank was to fail, then so be it. I also had the same conservative stance when it came to the stimulus package. To me, less is generally better — I don’t want our nation to go further into debt if possible.

Looking back though, it seems that our economic situation may have stabilized somewhat, and if things recover from here, or at least stay stable till recovery sometime in the future, then it would appear that the government’s strategy to bail out and to stimulate the economy in the grand ways that it has done has ultimately panned out.

While many economists say that we are now over the biggest humps in this recession, others say that there is more economic pain ahead of us. I suppose it remains to be seen how it all turns out. What do you make of this: as of this writing, the market is inching up again (the DJIA is over 8700) while the unemployment rates in many states are hitting highs. Mixed signals? Could we have bottomed out? I’d love to hear your predictions!