The Fed and Treasury propped up the banking sector fearing that a collapse would choke the life out of the economy.  Credit had to keep flowing, or the economy would grind to a halt, and this was particularly true in the housing market.

Today, the banks are indeed making mortgage loans again, but not quite the way the government intended.  As the Wall Street Journal reports, “Banks Load Up on Mortgages, in New Way.”

Rather than use TARP funds to make mortgage loans, the newly risk-averse banks are instead using the funds to buy government-guaranteed Ginnie Mae bonds.  And they’ve been buying them by the truckload.  Read the rest of this entry »