Originally Posted by
Centurion
Because taking TARP came with a certain understanding that Banks would continue to lend to responsible and credit worthy borrowers.
If Congress had wanted to make it the law, it could've; but it didn't; so at best, yes, an 'understanding'.
However, nowhere in the respectable press have I heard the idea suggested that banks should keep the
same credit standards as they had before. That seems to me the crux of the matter.
Take a look at a bank that experienced a massive loss on its loan book (that would be quite a lot of them). That loss was caused by lax credit standards. Failing to adjust those standards to reflect current conditions is arguably inconsistent with the fiduciary duties the directors of that bank owe to their shareholders.
In other words, the directors of the bank are
obliged to make sure some people who would've received loans in the past do not now qualify.
Banks (like American Express) continue to lend to creditworthy borrowers; but I completely reject your premise that someone who was considered creditworthy in 2007 must definitionally be creditworthy in 2010. Personal circumstances change, the market changes, the regulatory background changes.
Congress has yet to legislate that banks must become -- if you will permit the mixed metaphor -- suicidal ostriches, heads stuck in the sand as the tide comes in.