America’s financial sector has blown a hole in the economy so large that it will take many years to repair. The formal unemployment rate is above 10 percent and underemployment is an astonishing 17.5 percent. Yet last week, Bloomberg News calculated that the top three bailed-out Wall Street firms are on track to pay $30 billion in bonuses to their top officers this year and the Wall Street Journal estimated that the bonus pool for the financial sector as a whole is $140 billion.
Taxpayers have done their share. They have put trillions of dollars at risk in an effort to stabilize the financial system and have gotten little in return. Too many banks are not lending to small businesses, they are not helping American families facing foreclosure, but they are raising credit card and other bank fees at a rapid clip.
While many have been starkly critical of bank performance, yesterday criticism came from a new source, the Chairman of the Federal Reserve.
Bernanke Says Banks Still Not Lending
In a speech before the Economic Club of New York, Fed Chairman Ben Bernanke blamed the banks for worsening the unemployment situation. “Bank lending has contracted sharply this year...[and] banks continue to tighten the terms on which they extend credit for most kinds of loans… Banks' reluctance to lend will limit the ability of some businesses to expand and hire," Bernanke said. "Because smaller businesses account for a significant portion of net employment gains during recoveries, limited credit could hinder job growth."
Bernanke predicted that the unemployment rate will get worse before it gets better. "The best thing we can say about the labor market right now is that it may be getting worse more slowly.”
Trumka Says Leftover TARP Funds Could be the Answer
Now that Bernanke has seen the light, perhaps he will use his position to do more than talk. Today at a press conference in Washington, D.C., AFL-CIO President Richard Trumka called for the government support a bold new agenda to create new jobs and turn around the economy. An inventive new aspect of the program calls for using TARP bailout funds to put people back to work. “We should put some of the billions of dollars in leftover Troubled Asset Relief Program (TARP) funds to work creating jobs by enabling community banks to lend money to small- and medium-sized businesses. If small businesses can get credit, they will create jobs,” said Trumpka.
While $700 billion was authorized by Congress for the TARP, according to ProPublica only $400 billion has been used so far. That leaves a substantial chunk of change that could be used to extend direct credit for businesses whose priority is job creation. Community bankers who got nothing under TARP would also benefit.
It is an innovative idea and a step in the right direction – one that maybe even Ben Bernanke could support.