In Michigan, Bank Lends Little of Its Bailout Funds

[Pale Blue Dot]

Source: New York Times

TROY, Mich. — The bad bets made by executives at Independent Bank of Michigan are on display in spots across the state: a defunct bowling alley, a new but never occupied shopping center and the luxurious Whispering Woods Estates, which offers prime lots for never-constructed dream homes.

Keith Lightbody, a senior vice president at Independent Bank of Michigan, and Stefanie Kimball, its chief lending officer. “We need to make loans that are reasonable in this day and age,” she said.

Now it is the federal government making the big bet here.

The Treasury Department has invested $72 million out of the $700 billion in federal bailout funds to help prop up this community bank, which traces its roots back 144 years in Michigan. It is a small chunk of the giant rescue fund being wagered by Washington to encourage banks like Independent to resume lending and jump-start the frozen economy.

But Independent, hard put to find good borrowers in a suffering economy, and fearful of making the kind of mistakes that got it into trouble in the first place, is not doing much lending these days. So far it is using all of the government’s money to shore up its own weak finances by repaying short-term loans from the Federal Reserve. “It is like if you are in an airplane and the oxygen mask comes down,” said Stefanie Kimball, the bank’s chief lending officer. “First thing you do is put your own mask on, stabilize yourself.”

This is not what the Treasury Department had in mind when it started this program, saying it would give the nation’s “healthy banks” enough money to start lending again, so that people could buy homes and businesses could invest and create jobs, thereby invigorating a disintegrating economy.

Read more: http://www.nytimes.com/2009/01/14/business/economy/14bank.html?_r=1&partner=rss&emc=rss

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This is why, in a nutshell, the bailout bill - especially as written - was a terrible, terrible idea. History is going to judge those who pushed for it and passed it very poorly.

[bluestateguy]

1. This is a simple problem that can and must be fixed

Force the banks to loan money if they want in on the TARP.

No looser credit, then fine, no TARP money for you. Write the mandate into the new bill releasing the rest of the money.

[Romulox]

4. How is forcing them to make bad loans going to help ANYONE???

[bluestateguy]

6. You force them to make good loans

There are plenty of people with good credit being denied loans right now because of overly restrictionist credit. I never argued that they should make loans to people not likely to pay them back. And again, if the banks don't want to loosen their credit, then they are free to decline TARP money.

[WriteDown]

8. What restrictions would you set?

I am all for 10% min down.

[Romulox]

10. A "good loan" would be one they would be happy to make without coercion

"There are plenty of people with good credit being denied loans right now because of overly restrictionist credit."

I'm not at all sure this is true.

"I never argued that they should make loans to people not likely to pay them back."

Right. But that's precisely what banks and mortgage originators were doing before the present "credit crunch". Going back to the old ways = giving loans to those not likely to pay them back.

edit: I want to make clear: I couldn't give a damn about banks. It does working and poor people no favors to originate a "no doc" mortgage that they cannot pay.

[WriteDown]

7. Loan money to who exactly?

Only people with 20% down? I sure as heck don't want any people with shoddy credit getting loans. That's what got us into this mess.

[liberal N proud]

2. The only way it would have worked is for Congress to mandate lending

Congress didn't force the banks who received bailout money to lend it to customers therefore the bailout is a fucking failure.

[ashling]

3. The remainer of the TARP money should be

lent directly to individual borrowers rather than giving it to the banks.
I said from the first that if the problem was a credit crunch (ie, businesses and individuals et al can't get loans to carry on) then we need to provide credit through SBA or other agency directly to those entities if they are unable to secure it through traditional channels.

[WriteDown]

9. I like the SBA idea nt.

[Romulox]

5. This is why the TARP is bullshit. Forcing banks to make bad loans won't save the economy.

They should have distributed TARP money directly to homeowners so that they could save their homes while keeping the banks' mortgage portfolios healthy.

[Bob3]

11. Welcome to the Liquidity trap

Were the money supply just sits there doing nothing - it's a feature of depressions. Banks are afraid to lend (which is how banks make money) and business as bad as it is now a rational businessman isn't going to be interested in borrowing money hell they are cutting back on expenses.

it's the classic pushing on a string analogy - hence the need for fiscal not momentary stimulus.