Editorials

Investigate banks' use of bailout

Guest editorials do not necessarily reflect Herald-Leader views.

According to Treasury Secretary Henry Paulson, the chief proponent of the big bank bailout, flooding the banks with taxpayers' money was supposed to get them to start lending freely again. And that, in turn, was supposed to stabilize the markets and prevent the downturn from being worse than it otherwise would be.

It was not entirely clear from the start exactly how Paulson would ensure that things would go that way. Now, lo and behold, with $250 billion in bailout funds committed to dozens of large and regional banks, it turns out that many of the recipients of this investment from taxpayers are not all that interested in making loans. And it appears that Paulson is not so bothered by their reluctance.

Paulson and the bailout recipients have some explaining to do. Congress should plan hearings as soon as possible — and take action to set a clear strategy.

In his column on Saturday, The New York Times' Joe Nocera told about a conference call that he had listened in on recently between employees and executives of JPMorgan Chase. Asked how an infusion of $25 billion of bailout funds would change the bank's lending policy, an executive said the money would be used to buy other banks.

There was not a word about lending — not to businesses or home buyers or car buyers or students or other consumers. Just the opposite. In response to another question, the executive said that the bank expected to continue to tighten credit.

JPMorgan Chase is not alone. The Wall Street Journal reported on Tuesday that some regional-bank recipients of the bailout money had acknowledged that only a small portion would be used for loans and the rest for acquisitions and other purposes.

Congress and the public have every right to require that the money be used to benefit the public directly, even if doing so crimps the banks' profits. The bailout should not be an occasion for banks to make a killing.

The New York Times

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