The “Great Recession” which began in December 2007 may have come to an end at some point in the third quarter of 2009 according to many economists, but even if the recession is over, the recovery may still be rough and slow coming.
One major factor influencing the speed of the recovery is a major source of what got the world into this mess: big banks.
During the financial crisis both consumer and commercial credit became very tight, effectively choking off life to the economy. To get life flowing back into the economy it will require banks to be able to lend to consumers and businesses.
That was the original intent of the $700 billion Troubled Asset Relief Program; the much-publicized “bailout” of Wall Street.
As banks begin to repay a majority of the TARP funds, with a profit to tax payers’ dollars, losses on the program appear to be narrowing.
President Obama announced a calculated political maneuver by saying banks receiving TARP funds would be assessed fees, or essentially taxed, until the fund is completely repaid.
This is a move to distance an administration that has been accused of being a little cozy with Wall Street by sticking it to the Fat Cats.
The only problem is that it’s in direct opposition to Obama’s previous directive for banks to lend more.
It seems almost elementary to make the connection that you cannot tax the banks, many of which have already repaid their portion of the fund, and expect them to increase their lending to help an economy on the mend at the same time.
JPMorgan Chase bank was the first big bank to report fourth quarter earnings last week and many people use it as a measuring stick for the economy. If the banks are doing well and not suffering from massive loan losses, that bodes well for the future of the economy.
JPMorgan Chase reported a $3.3 billion profit in the fourth quarter of 2009, up more than 1,000 percent year over year, but the results were disappointing to the stock market.
The key the market focused on was that despite $3.3 billion in profit, mostly from trading and investment banking, there was nearly a $700 million loss on loans and credit cards.
This is an ominous sign that consumers are still struggling and as loan losses mount, it becomes more difficult for banks to continue to loan.
Add on top of this the government-imposed fees to repay the TARP loans and it could cause both banks and the economy to give up some of the ground they have recovered.
Banks will essentially end up passing the fees on to the consumers through higher borrowing rates, which will create a ripple effect that could derail the economic recovery.
