Conditions As An Incentive For Bank Repayment Of Gov't Bailout Funds

We may have stumbled on to a strategy for the financial crisis:

As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds. . . . Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn., and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs and Wells Fargo.

Good. These banks should only take government money if they absolutely have to. If they have other options, exercise them. That's why I do not like the reaction from this anonymous (naturally) Treasury official:

A senior Treasury official involved in the bailout effort said the administration was carefully trying not to do anything that could harm the banks and was giving financial incentives to modify mortgages. The official said the restrictions were part of a larger effort to clean up bank balance sheets and assist the economy. “We’re having to take some very unpleasant actions when the alternatives are so much worse,” said the official, who spoke on condition of not being identified.

Excuse me, but the government should impose any conditions it deems prudent. The idea of free government money is the problem here. This is, after, a bailout we are expounding. Some people seem to think that the purpose of the bailouts is to strengthen the position of these banks:

[A] growing chorus of industry experts are warning that asking weak banks to carry out the government’s economic and social policies could increase the drain on the public purse. These experts say that the financial assistance, while helpful in the short run, could force weak banks to engage in lending practices that will lose even more money, and that the government inevitably will become more heavily involved in dictating how banks do business.

“I honestly believe the people in power pushing this policy see it as a win-win — as something that is good for the banking industry and good for homeowners and others,” said Douglas J. Elliott, a former investment banker who is now an economics fellow at the Brookings Institution. “But there is a slippery slope and there are potentially significant negative consequences.” Mr. Elliott says that by modifying loans, banks that are already fragile could wind up losing more money. “What gets us in real trouble,” he said, “is when we try to fudge things and pretend that something is in the direct interest of both the government and the financial institutions when it in fact costs the banks money or increases their risk levels.”

(Emphasis supplied.) Precisely right Mr. Elliott. Do not confuse the purpose of the bailouts. They are to serve the COMMON GOOD, not the financial institutions. The financial insitutions should act in their own interests and if those interests do not coincide with those of the Common Good, then they should forego bailouts, if they can. What's so hard to understand about that?

Speaking for me only

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    If only we could be sure.... (5.00 / 1) (#3)
    by kdog on Wed Mar 11, 2009 at 08:34:10 AM EST
    the purpose all along was the common good...I wouldn't be so bold as to put government by, of, and for financial institutions outside the realm of possibility.

    I'd be so bold as to call it likely.

    If any bank is considering returning the funds (none / 0) (#17)
    by Militarytracy on Wed Mar 11, 2009 at 11:54:02 AM EST
    they obviously never claimed to need them and took them to serve the common good :)

    If only the government had a procedure (5.00 / 1) (#18)
    by oculus on Wed Mar 11, 2009 at 11:55:16 AM EST
    in place for accepting refund of bailout funds, . . .

    To heck with TCF (5.00 / 1) (#4)
    by DFLer on Wed Mar 11, 2009 at 08:39:51 AM EST
    TCF (the TC stands for Twin City) is moving its banking HQ to South Dakota. I anticipate a name change to The CowPalace Finacial

    on the corporate mentality at TCF:

    Long known as a hard-charging maverick opposed to big government, TCF Financial Corp. chief executive Bill Cooper has finally found a home among like-minded cowboys.

    South Dakota -- where cows outnumber people by more than two to one -- will soon become the new legal home of TCF National Bank, a subsidiary of Wayzata-based TCF Financial, the state's third-largest bank by deposits. Pending regulatory approval, the bank will move its headquarters to Sioux Falls, S.D., by April 1.

    The move won't mean a loss of jobs in Wayzata, where TCF will keep a large corporate office. But it will enable Cooper and his bank to take advantage of South Dakota's low taxes and lenient lending rules. The state has no corporate income tax; no cap on interest rates for loans; fewer fees on mortgages; and a legislature that has long been pro-business.

    It's one reason why the return addresses on many credit card bills are in Sioux Falls. Citibank moved its credit card business to Sioux Falls in 1982, and Wells Fargo consolidated its charters in the state in 2004.

    "Cows don't make deposits," said Tony Plath, a finance professor at the University of North Carolina Charlotte. "This is about shopping for the state with as little regulation as possible."

    (my emphasis)

    Pirates (5.00 / 1) (#24)
    by FreakyBeaky on Wed Mar 11, 2009 at 02:32:42 PM EST
    I am so glad my credit cards are either dead or all but dead.  In the past five years, I've told Citibank, MBNA, and one other I'm forgetting to take their interest rates and get lost.  Citibank sent me a letter begging for my business back.  I'm down to one I have through a credit union, and the balance will be zero within the next couple of months.  Bite me, Bill Cooper!

    Whew (none / 0) (#6)
    by gyrfalcon on Wed Mar 11, 2009 at 09:50:04 AM EST
    Phew.  Feh.  At least he seems to do banking the old-fashioned way, ripping off consumers rather than selling derivatives nobody understands by the truckload.  Citi, AIG, Lehman et al quite literally outsmarted themselves.

    let me add pee-yuu to your litany (none / 0) (#10)
    by DFLer on Wed Mar 11, 2009 at 10:29:56 AM EST
    Cows DO make deposits, actually.

    They want to support their local zoo (5.00 / 1) (#5)
    by samtaylor2 on Wed Mar 11, 2009 at 09:33:38 AM EST
    Don't you know :).

    How disgusting.  These masters of the universe are just plain fascists- we want strings for the little people, but not for us.  Hopefully this recession will expose more of them as the amoral people they are.  

    Sam, you might (none / 0) (#7)
    by gyrfalcon on Wed Mar 11, 2009 at 09:54:25 AM EST
    enjoy reading Jamie Galbraith's "The Predator State" about conservative ecnomic ideas.  It's a fairly short book written (by JK Galbraith's economist son) for a general audience and it's a meaty but pretty easy read.

    Ignorance is sometimes bliss but not in this case (none / 0) (#8)
    by samtaylor2 on Wed Mar 11, 2009 at 10:01:25 AM EST
    Who is JK Galbraith?

    I assume I can pick the book up in the library or local bookstore?


    John Kenneth Galbraith (5.00 / 1) (#12)
    by cal1942 on Wed Mar 11, 2009 at 11:15:31 AM EST
    Noted economist who worked in the Roosevelt and Kennedy administrations. Was Kennedy's ambassador to India.

    A fine author and speaker.  He wrote, among others, The Affluent Society, The Great Crash of 1929, etc.

    The antithesis of Milton Friedman.

    He taught at Harvard and was one of Arthur Schlessinger Jr's friends. They were neighbors in Cambridge. He passed away a couple of years ago.

    IMO a giant who's greatly missed.


    A giant indeed (5.00 / 2) (#16)
    by gyrfalcon on Wed Mar 11, 2009 at 11:28:07 AM EST
    I once had the huge privilege of finding myself at a fancy Cambridge party on the other side of a room when Ken Galbraith arrived and Robert Reich rushed up to greet him and the two embraced enthusiastically-- or tried to.  Galbraith literally had to double over to grab Reich around the shoulders.

    John Kenneth Galbraith (5.00 / 1) (#15)
    by gyrfalcon on Wed Mar 11, 2009 at 11:25:30 AM EST
    Here's the Wikipedia entry on him.

    Literally a towering figure (6-7 or something), prominent advocate of Keynesian economics, liberal if not perhaps outright lefty, pretty much threw a monkeywrench into thinking about economics, actually managed to write a couple of best-sellers on the subject, most notably "The Affluent Society."

    Canadian-born, but a critical guy in the Roosevelt administration, top adviser to Jack Kennedy and pretty much all Dem. presidents to one extent or another.  Basically good-natured, but witty, sometimes scathingly so. Totally fascinating guy, died just a few years ago.

    One of his sons, Peter, became a superb diplomat, the other, James, an economist.  James lacks his dad's sly wit, but in this book writes clearly and directly and pulls no punches in his analyses.

    Yes, you can surely get it either in a book store or the library.


    Thanks It is in the PDA for pick up (none / 0) (#20)
    by samtaylor2 on Wed Mar 11, 2009 at 12:12:34 PM EST
    He was also JFK's ambassador to (none / 0) (#26)
    by oculus on Wed Mar 11, 2009 at 11:45:58 PM EST
    India, a factoid I had forgotten until I recently read "Indian Summer."

    Priceless: (5.00 / 2) (#9)
    by oculus on Wed Mar 11, 2009 at 10:21:37 AM EST
    "We're having to take some very unpleasant actions when the alternatives are so much worse," said the official, who spoke on condition of not being identified.

    No segue:  the banks taking bailout funds are identiying themselves.  That's good.  But then the bank gets to explain how righteous it is--and--"patriotic."

    I like this read (5.00 / 2) (#19)
    by Militarytracy on Wed Mar 11, 2009 at 11:56:57 AM EST
    Looks like the banks are going to have to put in an honest days work like the rest of us for those privatized gains that came with socializing their losses.  I can deal with that.

    If I recall. . . (none / 0) (#1)
    by LarryInNYC on Wed Mar 11, 2009 at 08:29:37 AM EST
    These banks should only take government money if they absolutely have to. If they have other options, exercise them.

    The bailout was managed in exactly the opposite way from what you suggest, the reason being that singling out individual banks for bailouts would be the kiss of death for those banks, leading to more Bear Stearns / Lehman type meltdowns.  Therefore, even in the initial bailout some banks were more or less "forced" to accept government money.

    Then they should give it back (5.00 / 3) (#2)
    by Big Tent Democrat on Wed Mar 11, 2009 at 08:31:50 AM EST
    Or will Geithner say that will "stigmatize" those that do not pay it back? Or we through the looking glass yet?

    post-hoc chages (none / 0) (#11)
    by diogenes on Wed Mar 11, 2009 at 10:52:55 AM EST
    As McCain and others tried to say in 2004, forcing Fannie Mae and Freddie Mac to do "social engineering" and buy up mortgages then for poor people who would not otherwise qualify did no one any good.

    You so miss (5.00 / 4) (#14)
    by cal1942 on Wed Mar 11, 2009 at 11:20:45 AM EST
    what really happened, why we are in this mess.

    The More Conditions That the Government... (none / 0) (#13)
    by santarita on Wed Mar 11, 2009 at 11:19:04 AM EST
    imposes on its various financial assistance programs, the more it begins to look like de facto nationalization.

    So much of that NYTimes article reminds me of a fairly typical reaction of a troubled debtor in a workout - the creditor puts more and more conditions on the debtor so that one of three things happen:  the debtor pays the loan in full (usually with the assistance of another bank - the greater fool), the debtor goes into liquidation (Chapter 7 or 11) or the debtor turns around by restructuring the business (inside or outside Chapter 11).  

    AP reporting on testimony of (none / 0) (#21)
    by oculus on Wed Mar 11, 2009 at 12:15:04 PM EST
    a Bush holdover appointee.  This man is interim assistant in charge of financial security:


    I concur: (none / 0) (#22)
    by sarcastic unnamed one on Wed Mar 11, 2009 at 12:20:28 PM EST
    Good. These banks should only take government money if they absolutely have to. If they have other options, exercise them.

    A bank here had to be embarrassed (none / 0) (#23)
    by Cream City on Wed Mar 11, 2009 at 02:26:02 PM EST
    a couple of weeks ago, when it had to cancel a freebie trip to Vegas for lots of employees -- when the local paper reported not only on the trip but also that the bank had taken bailout money . . . although the bank said it didn't really need the bailout money.  Public outcry forced the cancellation of the trip, but it still has the bailout money that it didn't really need.

    My money.  And I need it.  Or I'd like it to at least go to the needy.

    Yeh, you bet I want to see banks thinking twice about taking bailouts as freebies, in addition to thinking twice about how they're spending all of their money on such things as freebie Vegas trips.

    (Btw, after this publicity, though, maybe this bank will need a bailout -- as a lot of locals said, amid the public outcry, that they would pull their accounts from that bank and find another. . . .:-)

    Hilarious (none / 0) (#25)
    by squeaky on Wed Mar 11, 2009 at 03:34:17 PM EST
    Of course the banks don't want to be employed by the federal government, they want no strings attached corporate welfare on crack. They must have missed the last election, some things have changed.