03.31.2009 0

More than they bargained for

  • On: 04/21/2009 09:35:35
  • In: Economy
  • By Isaac MacMillen and Robert Romano

    It’s a little late to say, “We told you so.” But nonetheless…

    Since the bailouts began last March, 2008, culminating in the $700 billion Troubled Asset Relief Program last October, and further expanded under the Geithner Treasury’s more than $2 trillion Financial Instability Plan, critics across the spectrum have warned that participants in these federal programs would be signing up for more than they bargained for.

    They warned that those “loans” would come with strings attached. And, of course, they did. Certainly, one might think that things couldn’t get worse for the banks with the very public, so-called “stress tests” soon to be unveiled. But, as they are quickly learning, things can always get worse the more powerful the central government becomes under the Obama regime.

    The danger was accentuated when Barack Obama fired GM CEO Rick Wagoner as a condition for further assistance. It was also demonstrated anew, as ALG News has previously reported in “Endgame”, by major financial institutions being prevented from repaying TARP loans, even though they were ready, willing, and able to repay them in full.

    Now we know why. Over the weekend, the Administration informed the media of yet another condition under which they can block TARP loan repayment: National economic interest. According to the Financial Times article, “Strong banks will be allowed to repay bail-out funds they received from the U.S. government, but only if such a move passes a test to determine whether it is in the national economic interest, a senior administration official has told the Financial Times.”

    Said the official, “Our general objective is going to be what is good for the system.” However, it is unclear who, exactly, gets to determine what is “good.” Or what meets up with the “economic national interest.” Though one can make a pretty good guess as to what the “system” is—and it has already been tried (and failed) in the Soviet bloc.

    Indeed, a transparency watchdog group was forced to file a Freedom Of Information Act (FOIA) request just to obtain the names of the Treasury officials responsible for handing out the TARP funds. According to the article, “Less than half a dozen people are responsible for making the final decisions about which banks get part of the $700 billion in bailout money available through the Troubled Asset Relief Program, according to Department of Treasury officials. In response to a Freedom of Information Act request made by the Sunlight Foundation in January for the members of the TARP Investment Committee, a FOIA officer recently responded with just four names…”

    What is less clear is by what process they determine who should receive—and now, who should be allowed to pay back—TARP “loans.” Are they even following any duly enacted law passed by Congress and signed by the President? What limits, if any, are being applied to the powers wielded by the Treasury?

    To make matters worse, the Obama Administration has announced that it will stretch the remaining billions of last fall’s $700 billion TARP funding by converting its bank loans into stock. In short, by sleight of hand, the government will be able to convert its relationship with the banks from that of “creditor” to “part-owner.” This is a travesty. And the nation will rue the day.

    And once those taxpayer dollars are invested in the banks, the government by definition obligates itself to ensure the companies’ survival forevermore—just as it did for Fannie Mae and Freddie Mac when they failed—so as to keep the welfare program, whether it be a housing program or otherwise, afloat.

    Unfortunately for taxpayers, it actually takes an efficient business model to make a profit. And it is already with gross incompetence that the federal bureaucracy is overseeing the banks, increasing the chances of the government will bury these institutions, and erase any incentive for private capital to form the basis of the financial sector. And that applies whether they use the Amtrak, post office, or Social Security models for government efficiency.

    This is a quiet nationalization, but it is nationalization to be sure. The feds are expanding the amount of taxpayer dollars in the coffers of banks, till the banks become no more than de facto federal agencies.

    At which point, American taxpayers will have zero hope of ever seeing their money back, for that can only happen so long as the banks remain in private hands. And that is an increasingly long shot, for as it stands now, firms attempting to repay loans are being turned away by a government that refuses to let go of its tyrannical leverage.

    So how will a bank avoid finding itself under the iron hand of government control? The easy answer would be to repay the TARP loans and thus remove the government’s boot from the bank’s throat. Unfortunately, that may be easier said than done.

    With both JP Morgan and Goldman Sachs now publicly expressing their desires to repay the TARP loans, the federal government is reacting by throwing an entire obstacle course in their way. With tactics as simple as not telling the CEOs whom to write the check to, to schemes as elaborate as announcing a “stress test” (to be unveiled in May—giving the government enough time to make it as complex as possible, no doubt), the feds are doing their best to avoid relinquishing their hold on the nation’s financial institutions.

    And, yet, its no wonder that these banks want to be free from government influence. The Wall Street Journal quoted financial analyst Peter Cohan, who stated that those banks who repay government funds could have a market advantage. “It could cause business to flow toward the banks that paid TARP back and away from those who haven’t,” he stated.

    It’s little wonder, then, that despite the government’s insistence that its market interference is for the common good, many Americans are beginning to question the government’s level of involvement in their daily lives. A new poll reveals that 52 percent of Americans are concerned that the government will do too much in reaction to the economic situation, the highest percentage since last October.

    And just last week, hundreds of thousands of Americans joined together on Tax Day to register their opposition to the continued government hegemony over the economy. With slogans such as “keep your hands off my bank,” they protested the bailouts, national debt, and wasteful spending that has so characterized “Obama’s America.”

    In spite of attempts by the mainstream media to paint them as a fringe movement, Americans had a “favorable” view of the tea parties by a 51-33 percent margin, with only 15 percent unsure. Tellingly, only 13 percent of the “political class”—an attitudinal term used by Scott Rasmussen—had a favorable view. According to Rasmussen Reports, “Those in the Political Class tend to have more confidence in political leaders and less trust in the wisdom of the American people.”

    The success of the tea parties has made it clear that the government’s continued forays to pillage and plunder private enterprise are at their own risk, and are increasingly unpopular. And with the crypic way this supposed “open” and “transparent” government has been operating, that is no surprise.

    Despite the promises of transparency and openness, the Obama Administration has been icily secretive about how the bailout money is being spent and who is spending it.

    Even their political allies in Congress have complained about how tight-lipped the Administration has become, with the TARP oversight committee chairwoman complaining that the lack of transparency is hurting her ability to fulfill her mission. And the ranking Republican on the Senate Finance Committee added his frustration: “You can’t measure effectiveness when you don’t know what the goals and objectives of a program are, or how the program is being run.”

    Of course, none of this should be surprising. Once the government gains any amount of control, it is loath to lose it. And it is likely to abuse it. Having poured, lent, and pledged more than $13 trillion of taxpayer dollars into the teetering financial system, the federal government is now flexing its muscle at its pigeons’ expense.

    To avoid relinquishing control, it is moving the goal posts just beyond reach to perpetuate the crisis, making those conditions so difficult that the banks will be “encouraged” to “choose” to stay under its iron wings—just as the Russian satellite states “chose” to join and then “remain” with the USSR. And this is nothing short of brutal coercion.

    In the end, the banks who accepted the TARP loans will realize—all too late—that their offer to play by the rules was not enough to satiate the feds. They made a loan of cow; now they want the farm. And they are willing to take it by the force of law.

    Somehow, a “we told you so” just doesn’t quite cut it—especially since those upon whose ears it would fall are already paying with their liberty for an unwelcome lesson.

    Isaac MacMillen is a Contributing Editor of ALG News Bureau. Robert Romano is the Senior Editor of ALG News Bureau.

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