Read this Money and Markets article by Sean Brodrick
One Thing the Banks Are Not Doing With the Money:
Loaning It Out Like They Were Supposed To …
One place where big investment houses and banks did decide to put money to work was in shorting stocks.
A bunch of financial firms lined up to short Volkswagen. It seemed like a smart move, right? Cars sales are tanking. Problem is, at the same time, Porsche was stealthily buying Volkswagen shares until it acquired a controlling interest. Then the short squeeze was on. Those bailed-out firms suddenly had to cover their short positions and lost billions of dollars.
Some of them lost more on the Volkswagen deal than they ever lost on Lehman Brothers imploding!
The banks’ post-bailout behavior — no loans, blowing bailout money on bad investments — irked Barney Frank, chairman of the U.S. House of Representatives Financial Services Committee, one of the people who helped Paulson ram the Emergency Economic Stabilization Act of 2008 (EESA) through Congress.
Frank is supposed to be one of the “smart ones” in Congress. Here’s what he had to say:
“I am deeply disappointed that a number of financial institutions are distorting the legislation that Congress passed at the President’s request to respond to the credit crisis by making funds available for increased lending. Any use of these funds for any purpose other than lending — for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc. — is a violation of the terms of the Act.”
Nice words. Too bad they’re as hollow as a rotten log.