Despite the fact that TARP funds have been paid out to over 200 financial institutions, beleaguered consumers are having a harder time than ever getting credit. Right now the US Government owns over $172.5 billion in the preferred shares of 218 financial institutions.

TARP funds are not trickling down to consumers

Unfortunately for the average Joe, the banks have turned stingy now that they have their hands on fresh funds.

“With the banks in a state of catatonic fear now, they’re just sitting on the capital,” said Allan S. Blinder, professor of economics at Princeton University. “I don’t fault the banks one bit, since this shows Wall Street they’re safer, but then this doesn’t get you much improvement. If you’re taking money from the public purse, we should get something in return, and we’re really not.”

Not only are banks no longer interested in their core lending businesses, but they’re using TARP funds for all kinds of creative financing packages. Take the example of Hartford Financial Services. Since they’ve had so much trouble raising capital, they’ve decided to buy a savings and loan for $10 million. Once they do, they’re eligible for $3.2 billion worth of “TARP Relief.”

Tapping the CPP, part of the government’s Troubled Asset Relief Program, may help relieve such pressure. However, as an insurer, Hartford and some rivals weren’t able to access the program, which is aimed at banks and other lenders. The government has discussed expanding it, but that hadn’t happened yet and the deadline for applying expires Friday.

Of course this isn’t what the bailout was designed to do. Since the US economy is largely based on consumer spending, any stimulus package proposed by the government would be to “prime the pump”. The stimulus is needed to get consumers to spend, which creates more demand for business products, which keeps people working. Since the financial institutions that are receiving money from the government aren’t lending freely to consumers, the equation has already failed.

Unemployment leaders to higher default rates on credit

Of course the unemployment numbers are rising, and along with the freshly unemployed, creditors are bracing for a huge upswing in defaults on credit accounts. Seemingly a focus on keeping people employed would be at the forefront of any bailout proposal, but with companies using TARP funds to finance takeovers, you can expect even higher unemployment as companies consolidate.

Even with a Fed rate near Zero, banks won’t lend

Despite lowering the Fed rate to near zero and injecting billions in capital into struggling firms, the desired result of freely circulating credit has not been achieved. Worse, banks are acting like pigs at the trough. In recent weeks we’ve learned:

1. Companies that received TARP funds sponsored the Bowl Games
2. Companies that received TARP funds purchased vanity stadium naming rights
3. TARP fund recipients have paid billions out in executive bonuses
4. TARP funds have been used to finance takeovers of rivals (which result in layoffs)
5. TARP recipients still are lobbying Washington

What we haven’t heard is a single success story. Consumers are still hurting, and sales revenues are way off for every major manufacturer. Now with a monstrous stimulus package coming from President-elect Barack Obama, taxpayers are left to scratch their heads and wonder who really is steering this ship.