Just Give Us the Money and We Will Lend it Out.(fingers crossed)

It seems that some rumors have been circulating about the banks, which are set to receive a piece of the $250B that the Treasury is handing out, are planning on NOT handing it out to consumers. Sounds counterintuitive? Not exactly. There is no doubt that the banks need the money. The problem is that banks are not in a hurry to lend it when they are uncertain about the future. Many of these national and regional banks still have large loans out and they are nervous about the continued status of these loans because of the downward spiral of the economy.

So they have two choices to make with the “fresh powder” that the Treasury has given them; (1) Loan it to revive the economy and encourage consumers (recommended by Treasury), (2) Keep the money in their own vaults and wait for the downpour of defaults (recommended by their Board). I hope that Hank and the Boys have placed some covenants on when and how this capital is to be distributed to consumers so that we are not just financing another failure (i.e. shooting ourselves in the foot). Unfortunately, I did not see any mention of this in the term sheet.


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