There is a very interesting article at Townhall.com about the money from the initial bank bailout. It seems that a number of local banks are backing out of the government bailout. They are looking at the strings attached to the money and deciding that they are not interested. One bank, Fidelity Bank in Dearborn, Michigan, had originally applied for bailout money in November, but when the directors realized that if they took the $29 million they had applied for, the government would have owned 25 per cent of the bank's stock, they decided to refuse the money. Many of the smaller banks were not involved in the subprime market, so they are not in trouble, and the strings attached to the bailout money make it very unattractive unless a bank is desperate.
Congress is pushing any bailed-out bank to make loans to help the economy, but if the jobless rate is high, the number of good loans applied for goes down. The smaller banks did not want the government telling them to loan money when they did not consider the loan wise. It was pressure put on banks by the government and by such groups as ACORN that caused many banks to make bad loans and caused the lending crisis in the first place.
The smaller banks are also leery of the government changing the rules in the middle of the game. Government regulations on banks and businesses are a nightmare now, if you add to that bailout money, the freedom of business to operate independently from government will be in jeopardy. Just a note along those lines--I have heard it suggested that judges in bankruptcy court be allowed to change the terms of mortgages in order to avoid foreclosure. Has anyone considered what that will do to contract law? If a mortgage can be changed without the consent of the lender, what good is a mortgage contract?
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