You've probably already heard TARP funds aren't actually buying troubled assets anymore, and if the reason why isn't confusing or irritating enough, we now find out one of the reasons why Wall Street's $700 Billion is not easing lending as originally intenteded.

From July 7th to date, there has been over $5 trillion in credit-rating downgrades in companies' mortgage-related securities, and of special concern is the accelerated rate of downgrades in 2008 ($1.84 trillion in Q4 2008, compared to $183 billion a year earlier). Ok, English please. Companies take a big hit on their income statements as their AAA-rated securities are downgraded. In order to maintain a higher regulatory capital requirement imposed by lower-rated securities, they end-up hoarding capital (i.e., TARP funds) to cushion their portfolio losses.

None of this came as any surprise Meredith Whitney, the Oppenheimer & Co. analyst  known for calling many of our economy's recent ails. She predicted securities' downgrades would be unprecidented and result in banks unwilling or unable to lend the capital available to them. What does this mean for the real estate market? Well, according to Whitney, this could continue to drop real estate prices as, depsite capital injections, lending continues to remain tight.

(See video of Whitney speaking about downgrades, real estate prices & consumer credit in Aug. 2008)

So what's in store for 2009? According to Whitney, Wall Street may need more liquidity. Big surprise -- I think a lot of us figured the $700 billion was just the beginning; but what I find especially disheartening is TARP funds are currently stuck supporting previous malinvestments, and not easing lending as originally intended. I guess some would argue supporting these malinvestments keeps home values & our economy from tailspinning even more, making institutions more willing to lend.

Who knows, but if Whitney is correct about 2009, then where is this liquidity supposed to come from since nobody has the cash to pony-up? My guess is the goverment -- eh, hmm, the American taxpayer -- and if I'm an investor in one of these banks again I want a little more assurance that my money is actually used for what I am told. I'm sure private investors would require this -- why should the American taxpayer be treated any differently?