by John Talleos

Created on: February 24, 2009

Whether or not TARP is making banks provide loans is not the right question. Banks have to lend money because that's what they do in order to exist. Banks lend money because business or start-up businesses have the prospect of seeing a profit which in turn yield bank profits in repaying loans. To say that banks will succeed in driving the economy through loans is like saying Home Depot will propagate the real estate market by providing nails. TARP legislation was useful so that key banks didn't fail thus forestalling a cascade of events where major holders of notes and investment didn't go under and, as the theory goes, collapse the economy as a whole.

So lets return to the original question. Are Connecticut banks fulfilling their responsibilities to lend under TARP? The answer has to be yes. Yes because they have the resources to do so. That doesn't mean that they are apt to do it. The question is predicated on the idea that the means of successful economies are loans and the answer to that is no. Successful economies rely on the return of ideas making a profit or an expansion of older ideas. Connecticut is rich in that its people are productive with a healthy entrepreneur spirit. This state will survive whether government propes up bad loans of the past or not.

What TARP does not do is the same as what banks do not do in general, create or expand ideas. Providers of building material as those who are holders of inventory of cash, do not make dreams or aspirations but are the tools towards that goal. Giving more money to banks through governmental fiat to grow an economies is roughly the same as giving a lumberyard more nails and studs to grow the real estate market. The means don't create the ends. they are just, well, the means to the end.

If Connecticut's economy doesn't grow it is not because of the resources necessary. It is because investors or those who create ideas don't see in the terrain the prospect of making a profit.

What needs to be done is to provide a return on capital. Fixing a home, for instance, and selling it for a profit is a simple devise to make a profit. When capital is less expensive then there is a greater return of profit. Lets go back to the Democratic debates where president Barak Obama was asked by ABC anchorman Charles Gibson why he would increase capital gains taxes if in doing so, would yield less revenue while lowering them would increase them. No other question in any of the debates was more instructive in the forces of economics

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