TARP: Let's Keep the Strings Attached, and Show These Banks What a Real Rootin-Tootin Ol' Fashioned American Bailout is Really All About!

You know, you want to believe that our governing philosophers aren't as nakedly power-grabbing as they seem to be, and that the "intellectuals" who support them think that government giveaways are really necessary because, well, they are really necessary, not just as cheap support for power grabs in the alas all-too-convincing to the general public arguments about pipers calling tunes. But see the regrettable Michael Hiltzik in the Los Angeles Times:

The headlong rush by big banks to pay back their TARP bailout loans -- Citigroup is the latest candidate looking for the exit -- has prompted a lot of stock-taking about this widely detested $700-billion program….

One question that perhaps isn't being raised enough is this one: Should we let the banks repay the money?

To put it another way, by allowing the banks to exit the emergency program that saved their butts in the fall of 2008, is the government giving up what could have been an effective tool of leverage over this misbehaving industry?

….Indeed, the banks want out chiefly to escape what they think of as onerous conditions imposed on the loans, such as $500,000 caps on the cash compensation of their top brass….

….What makes the banks' haste to exit TARP even more unseemly is that while they grouse about the largely toothless constraints on executive pay, the government deal was extremely generous by almost any measure. The loans carried an initial interest rate of 5%, much lower than what spavined institutions such as Bank of America and Citigroup would have been able to get anywhere in the universe……

What was best about TARP was that it placed a congressional stamp on the government's determination to rescue the banking system….

Meanwhile, the president does what he can to lay the groundwork for the next bank bailout by jawboning the industry to start getting "extraordinary" with their lending:

While White House press secretary Robert Gibbs said all the bankers agreed to take "second looks" at loans that had been denied, some executives cautioned that they still needed to act judiciously.

"Not everyone is credit worthy in today's world," Robert Kelly, chairman and chief executive of Bank of New York Mellon said on CNBC after the meeting. The U.S. economy is recovering, he said, "but it's really fragile."

Judicious, schmudicious: Repeat after me and President Obama: what a debt-sunk economy needs is more debt, stat!

Comments

[Johnny Longtorso]

They're just afraid that if the money is repaid too soon, people will question just how much the govt is responsible for 'saving' them.

[No More]

BofA had 26 billion in capital reserves when they were foreced to take the first "bail-out".

[Groovus Maximus]

Or, more accurately, how necessary it was to bail them out in the first place, something I question emphatically.

[G Mc]

Meh, it's only rhetoric on Obama's part. He's just playing the part in an attempt to siphon some of the populist anger towards the banks into political support. On a policy level, little real action has been taken to change the behavior of the banks.

[prolefeed]

One question that perhaps isn't being raised enough is this one: Should we let the banks repay the money?

... What makes the banks' haste to exit TARP even more unseemly is that while they grouse about the largely toothless constraints on executive pay, the government deal was extremely generous by almost any measure.

Wow. Just wow.

So, does Hiltzik really think that banks are rushing to repay loans with extremely generous terms favoring the bank?

Or, is he just contemptuous of the intelligence of his readers, and thinks they can't spot the huge logical flaw in his argument?

[Ted S.]

You know, you want to believe that our governing philosophers aren't as nakedly power-grabbing as they seem to be
No, I don't want to believe that.

[Ron L]

"is the government giving up what could have been an effective tool of leverage over this misbehaving industry?"
The sub-text is that the misbehavior was handing out risky loans. True enough, and encouraged by government policies.

"Meanwhile, the president does what he can to lay the groundwork for the next bank bailout by jawboning the industry to start getting "extraordinary" with their lending"
So let's 'regulate' the misbehavior by encouraging it.
Good plan!

[anon]

it's not the "regrettable", it's the "detestable" Michael Hiltzik

[Elaine]

"Not everyone is credit worthy in today's world,"

just as not everyone is sponge worthy.

[ap]

come on, hiltzik is to business what tj simers is to sports.

they are truly pathetic. but its not worth the ink.

[hmm]

Forget the shitty idea of loaning money to people who are the definition of adverse selection. Why in gods name would any government with a central bank push for banks to release the excess funds they are holding (because they now get interest on them) into the market and drive inflation through the roof. One of the main reasons we aren't wheelbarrowing our dollars to get the weekly groceries is because banks haven't been increasing MS through fraction reserve banking.

[Hazel Meade]

Which makes all the extra printed money kinda like an accounting gimmick that they Fed came up with to improve the look of the bank's balance sheets, doesn't it. As soon as the banks start lending it out, they are over-leveraged and back to where they were last fall, less loss in value of the dollar.

The only way to get out of this is to let the banks fail, and let someone else buy their asdsets at a discount.
Someone has to lose money for the economy to recover. We can't keep pretending the losses didn't happen.

[Groovus Maximus]

Agreed. They are trying to apply the Kramer Korollary of "They just write it off." But there are tangible assets just sitting there and not sold, and yes they will be sold for a loss. Business calls this purging process "liquidation of inventory."

[briareus]

Don't worry, FAS140 amendments that go into effect in 2010 require banks to be a lot more forthcoming about their off-balance sheet losses.

Why else do you think we are seeing this and this? They're waiting for the loss wave soon to hit them.

What is interesting is that if you take a look at the FED Senior Loan report, you'll see that 85% of the banks report that they have not tightened lending standards, this despite the President harassing the banks for not 'doing their part lending'. That same FED report also shows that most banks are reporting less demand for loans; creditworthy businesses seeing flat demand aren't taking loans and loans to the uncreditworthy aren't being made. Essentially, banks are now acting (at least in their core lending functions) in exactly the fashion they were being attacked a year ago for NOT acting.

Thank you, Barack Obama, President of Moral Hazard.

[OMG]

+1

However, they are being handed a real asset with no strings attached in the form of the yield curve spread.

[Jorgen]

Wheelbarrowing? Really? Do you have, like, 500 kids? And have you considered paying with a debit card or something? I mean, I could see using a wheelbarrow if you were paying in pennies, but who has that many pennies? Are you following Steve Chapman around, picking up the ones he drops in disgust?

[Jorgen]

sorry about that! I read "aren't wheelbarrowing" as "are wheelbarrowing." I'm glad to know that there aren't any overly fecund penny hoarders here at reason.

[John C. Randolph]

What really pisses me off about this story is that the government hasn't even considered returning that money to the taxpayers. When the banks give it back, they'll just use it to fuck up the economy even more.

-jcr

[Attorney]

^ WHS

[briareus]

Just this morning it was reported that some Senators were talking about taking the money and putting it to a jobs program building roads.

We've learned all the wrong lessons from Japan; we've learned how to repeat their disastrous mistake.

[P Brooks]

the misbehavior was handing out risky loans

...to the wrong people.

[briareus]

Any risky loan made by a private bank that is ultimately backed by the taxpayer is unethical.

[mitch]

by allowing the banks to exit the emergency program that saved their butts in the fall of 2008, is the government giving up what could have been an effective tool of leverage over this misbehaving industry?

Ugh, its like your aged mother lending you money in hopes it will inspire you to call her more often.

[briareus]

Yeah, if your aged mother could also rally the whole neighborhood against you.

[OMG]

And restrict or tax your income, oh ... and through you in jail

[Sean Healy]

US banks need to learn a trick or two from Ireland, where the government has bailed out the whole banking system. As small businesses starve for working capital, the banks claim they are approving loans at the same rate as before the crisis. How, you ask? Well, they unofficially tell bad credit risks not to bother applying for loans they won't get anyway. Thus, only the tiny number of creditworthy borrowers apply for financing and - voila! - they hit all the implied government targets for post-bail-out lending.