Dude, Where’s My $700 Billion?

Treasury Secretary Hank Paulson has given out almost all of the first $350 billion of the $700 billion bailout fund, and the economy continued to slide down – so where did all those money go? Mike Madden of Salon.com finds out:

The infusion of money may have kept credit from tightening up further, but it certainly didn’t jump-start the economy — banks didn’t resume lending to businesses and consumers. Stock prices never really recovered from their early autumn plunges, and more than half a million jobs vanished just last month. With the benefit of hindsight, lawmakers now express regret about the way the bailout was handled — with few provisions for oversight of the banks or the Bush administration — and the public hates it more than ever. The feeling that money and political capital were squandered even helped endanger the far cheaper and more popular bailout of the auto industry. So what went wrong — and where did all that money go?

A lot of it is, apparently, just sitting in the bank. A Government Accounting Office audit released earlier this month showed the Treasury Department doling out buckets of cash: $15 billion for Bank of America, $45 billion for Citigroup, $3.5 billion to Capital One, nearly $6.6 billion to U.S. Bancorp. The feds were essentially taking out the trash — buying shares in various banks that had gotten themselves into trouble by issuing crappy mortgages using complicated formulas, assuming the cost of many of the mortgage-backed securities that were weighing down the balance sheets of every financial institution in the country. The feds were pumping money into these banks so they would feel free to make more loans — better, simpler, sounder loans. The epidemic of exploding mortgages and failing institutions would ease. But the banks did not start making new loans. They seemed to sit on their federal windfalls.

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This is the point where I would be remiss if I didn’t point out our own T-Shirt on this subject: The $700 Billion T-Shirt