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Following the Bailout Money Trail Yields Few Answers

With about half of the federal bailout allocation spent, questions remain about how exactly recipient banks used the money. Analysts give an update on where this $350 billion has gone.

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    When President Bush announced he would help automakers last week, it meant nearly all of the first $350 billion of federal bailout money had been committed. The questions now: How well has that money been spent? And what next?

    We check back with three people we've talked to throughout the last months. Alan Blinder, former vice chairman of the Federal Reserve, is a professor of economics at Princeton University.

    Alice Rivlin is a senior fellow at the Brookings Institution. She served at the Fed and as director of the Office of Management and Budget during the Clinton years.

    Martin Feldstein of Harvard University was chairman of the Council of Economic Advisers under President Reagan.

    And joining them tonight is Diane Casey Landry, chief operating officer and senior executive vice president for the American Bankers Association.

    Well, Alan Blinder, I'll start with you. You wrote an op-ed piece the other day titled "Missing the Target with $700 Billion." So what's the main thing you see that's been missed?

  • ALAN BLINDER, Princeton University:

    Well, I think the main thing is the main thing that was in the bill. The bill was written mainly to buy the so-called trouble assets. That's why it's called the Troubled Asset Relief Program.

    And, secondarily, and partly by dint of that, to get control of mortgages and refinance them to forestall foreclosures. The number of the dollars of the $350 billion that have been used for those two purposes is precisely zero, which strikes me as a little low.


    All right, Alice Rivlin. I mean, when you joined us last time, I think you were sort of giving the benefit of the doubt to Mr. Paulson, in terms of what he was trying to do. Where are you now?

  • ALICE RIVLIN, Public Policy Institute, Georgetown University:

    Yes, I think buying the troubled assets in a public auction turned out to be too difficult a thing to do and to explain. Actually, the Federal Reserve is buying them a lot of them now.

    But I thought turning to direct capital injections into the banks was a good thing to do and has worked out reasonably well. But now we've got to move on to the other part of it, and very little has been used to help homeowners.


    All right. We'll come back to what next.

    Let me go to Martin Feldstein in Boston. Where are you now? What do you think?

  • MARTIN FELDSTEIN, Harvard University:

    I think that the TARP was totally misused. As Alan Blinder said, it never got around to dealing with what it was supposed to do, buying the impaired assets.

    Putting $25 billion or less into a significant number of banks, spending $250 billion doing that really didn't do anything to increase confidence in those banks. It didn't do anything to increase the lending by those banks.

    And to the extent that it simply increased capital so that they were in a position to expand their balance sheet, well, that really wasn't the problem they faced. The big problem that the banks faced was a lack of confidence. And the amounts that were available in the TARP program, except for a few banks, were simply not enough to matter.


    Well, Diane Casey-Landry, that brings us to you, representing many of those banks. From their perspective, how has this gone?

  • DIANE CASEY-LANDRY, American Bankers Association:

    Well, first thing we'd tell you is that the banks didn't ask for this program, but we think the program has been going reasonably well.

    We're very concerned that the program is still not available to all banks. There's only been 155 banks that have received the funds. And lending has increased. If you measure lending from the second quarter to the third quarter, lending has gone up by 8 percent by the 18 largest banks that received the funds, or some $300 billion.


    It has increased?


    It has increased.

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