Why Banks Still Won't Lend

Excerpts from the article:

Why Banks Still Won't Lend

by Mara Der Hovanesian and Christopher Palmeri
Friday, January 9, 2009 provided by

“Right now there's little financial incentive to make fresh loans. In the current unease, new corporate loans are immediately marked down to between 60¢ and 80¢ on the dollar, forcing banks to take a hit on the debt. It's more lucrative, then, for them to buy old loans that are discounted already.

At the same time, some banks no longer have the appetite to use leverage, borrowing money to amplify returns. Others say they would like to use leverage but can't easily find willing lenders who offer attractive terms. Leverage has long been a critical factor in profitable lending.

Whether the industry's stance is justifiable or not doesn't really matter. Either way, companies are having a tough time getting credit. And without additional intervention, the lending climate could remain cloudy for a while, threatening companies' prospects and weighing on the economy.”

What is your take on this, If the Federal Government has given these lending institutions $350 Billion in TARP funds and is set to release the other $350 Billion, should they start making loans or just use the money to shore up their positions as mentioned in this excerpt from the same article:

“Banking chiefs defend their position. They argue that the government funds are designed to shore up capital and support lending, but that they have no obligation to make new loans. "It's not a one-to-one relationship," says BofA CEO Kenneth D. Lewis. "We don't write $15 billion in loans because we got $15 billion from the government."

What do you think; Inquiring minds want to know?