Citibank today said that they are going to repay the $20 billion in bailout funds that they were given in order to relieve themselves of the debt owed under the Troubled Asset Relief Program.  They are not the first bank (either commercial or investment) to do so.  The frosty lending environment still hasn’t thawed, and start-up capital lending is virtually non-existent.  Joblessness rests at over 10%, and Dubai may have gotten out of the gate first in the commercial lending meltdown. 

Despite calls from Congress and the President, banks are just not excited to lend and have finally re-discovered all of their market fundamentals (lend only to excellent risks; don’t gamble other people’s money;  build up savings cushion, etc.) that they conveniently forgot when mortgage backed securities were all the rage.  I can’t blame them for their lack of excitement at lending.  I wouldn’t either.  The trouble is, when you ask for taxpayer money in order to survive and receive it, normally there are strings attached.  TARP appears to have had no (or very few) strings.

General Motors has lost two CEO’s with pressure from government regulators.  Chrysler is quietly spending its last days as a going concern as a foreign-owned entity.  But the banks (along with re-insurer AIG), the nexus of the economic meltdown, seemed to have gotten away with nothing more than signing an IOU and agreeing to spend TARP funds on advertisements suggesting people start savings accounts with them.

Any time government begins to meddle in the private sector, even with the best of intentions, something equally as obnoxious seems to happen in return.  Banks took tax funded loans, got solvent, got more savings cushion, then are paying back TARP in order to avoid the pitfalls and market stigma.  Now that the government/private banking industry have crossed that line ever further than before, the question is fair to ask who’s next?

Small business owners across the nation with excellent credit histories are not able to borrow money.  Banks teetering on the verge of insolvency with laughable balance sheets were given loans in order to stay in business.  Something just doesn’t seem fair.

Poor choices should yield poor results.  Terrible choices should yield terrible results.  But in the age of TARP, the natural paradigm was artificially shifted.  Legitimate businesses lost funding and many have left the competitive landscape.  Terrible businesses are now paying back TARP funds with consumer savings instead of lending in order to avoid pay caps.  TARP may have been necessary at the time in order to avoid a depression.  However; the strings attached were much too easy to shed.  We can’t very well mandate who gets or gives loans and for what amount as that thinking helped get us into the mess we are in.  But it is a sad day when my construction company owning friends are laying off staff and considering orderly wind-downs and the banks are paying back TARP.  What a tangled web we have woven ourselves into.  Banks are unwilling to lend, businesses are afraid to expand (thus build) and the economy hangs in the balance.  Yuck.