News Coverage Shallow & Unfair

Acting on fears that international financial markets were becoming dysfunctional, Congress & the Bush Administration hurriedly passed the TARP legislation that pumped $350 million into bank balance sheets. I am not a big fan of this program and even had a radio ad running boasting that Reliabank did not need or want any of the TARP money. But I feel compelled to chastise the news media for their misleading reports on the use of TARP money. Their coverage is a good example of sensational journalism that misrepresents the facts. A word of explanation--TARP money is put on to the liability side of a bank balance sheet costing the banks 5% to 7%, sort of like a preferred stock offering. The simple theory behind the TARP program was that banks with bad loans (toxic assets) would have the ability to charge off these loans and have sufficient capital to continue making loans to credit worthy customers, so that the entire world economy would continue to function. For those that don't deal with bank balance sheets, liabilities includes the following kinds of money: a) customer deposits, b) borrowings from the Federal Reserve Bank or Federal Home Loan Bank, c) Traditional Capital , which consists of stockholder's investment in the bank, and in some cases d) Preferred Stock which usually carries a stated interest rate but no voting rights. The Asset side of the balance sheet includes a) loans to borrowers, b) investments in municipal or US Government bonds, c) bank buildings and property. So the news media has questioned the banks who have received TARP money and asked, "What did the bank do with the money?" Banks have refused to answer because there is no answer. The money was not ear-tagged when it was invested in the banks and is now blended with customers deposits and other monies that flow through a bank. So in reality a small portion of TARP money is every new loan a bank makes, every bond it buys and every operating expense that it paid. It would be like taking 5000 gallons of water and dumping it in Hidewood township near Pee Monkey Run and later asking how much of that water ended up in Sioux City? Maybe you could guess at that answer if you were told the question was going to be asked before the water got dumped. Everyone is looking for scapegoats to blame as jobs are lost, homes are foreclosed and people suffer financially. Some big banks will be tagged for their contribution to residential mortgage mess, but just because they accepted TARP money and now can't tell an inexperienced reporter how those funds were used is not a reason to see them as a villain.
David W. Johnson, CEO