Knakal: Effects of Citi Bailout Unclear

NEW YORK CITY-Although news of the federal government’s $306-billion bailout of Citigroup on Sunday has given the stock market a lift, using TARP to buy troubled assets may not be the most effective use of the program. That’s the assessment of Robert Knakal, chairman of Massey Knakal Realty Services, in an interview with GlobeSt.com.

“In general, the Treasury Department could have done a better job with the capital they’ve injected into the system” since the mid-September upheaval in the financial services sector, Knakal says. He notes that many of the banks that have gotten capital through TARP have either sat on it or used it to buy other banks, rather than to make loans. Mandating that banks deploy the funds to provide credit would be more beneficial to the system, he says.

“For every dollar TARP spends to buy bad assets, there’s $1 of benefits to the system,” he says. “For every dollar the program provided to make loans, there would be $10 or $11 of economic stimulus.”