Where Exactly Is All That TARP money?

Not here. As far as savings go, Americans have gotten religion. We now owe less money collectively than we did a year ago, as the graph above shows. Not only do we want to get out from under; lending institutions are forcing us to submit to tighter discipline. They are making money less freely available now to protect themselves from risky borrowers.

But this is bad news for an economy built on expanding consumer debt. The reduced demand for goods and services has resulted in massive layoffs during the past nineteen months, feeding a vicious cycle of lost incomes and delinquent loans. Policy makers in Washington last fall tried to stanch the bleeding with the infamous TARP, a program designed to force $700 billion through the nation's banks into the hands of tapped-out consumers. It was a frantic attempt to keep the debt addiction going.

A funny thing happened on the way to recovery:

[THERE it is...]

Instead of recycling the money as intended, the banks are sitting on it. Notice (above) how excess bank reserves have soared since September's meltdown in the credit markets. Once burned, banks are now twice shy about building their balance sheets on the backs of distressed consumers. Instead, they are hunkering down until the storm passes.

TARP was supposed to mitigate the pain. It has not done that, nor has it helped to spread the pain evenly. It has selected and protected a privileged group of survivors, a class that, more than made whole, is actually profiting from the crisis. During the Obama relief rally, banks have made money by underwriting each other's stock offerings and trading each other's stock. They have not made it by making new consumer loans or modifying existing ones.

They said that taking TARP money was the patriotic thing to do. They lied.