We Will Control the Horizontal, Part II

Not content with becoming the President of the United States and then President of Government Motors, President Obama apparently now insists on retaining some degree of control over the nations banks by refusing to accept early repayment of TARP money. Frankly, I find this disappointing but completely unsurprising.

Here’s a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He’s been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists. That’s politics talking, not economics.

This might refer to this story here. I’ve written about this before how laws and regulations evolve in terms of their applications. RICO laws are now used against corporations instead of against organized crime, and eminent domain has now been extended to taking private property not for public use, but for another’s private use.

Overall, we see a rather serious push for government to be further and further involved in micro-managing industries and companies in those industries. Perhaps this is a good thing, but I’m very skeptical.

Update: This story indicates that 5 banks have repaid the TARP money and others are awaiting approval.

  • Iberiabank (NYSE:IBKC) of Lafayette, La.
  • Bank of Marin Bancorp (NYSE:BMRC) of Novato, Calif.
  • Old National Bancorp (NYSE:ONB) of Evansville, Ind.
  • Signature Bank (NYSE:SBNY) of New York
  • Centra Financial Holdings (NYSE:CLFC) of Morgantown, W.Va.

Not far behind is Sun Bancorp (NYSE:SNBC), which received approval to return its $89.3 million in TARP funds next week. Shore Bancshares Inc. (NYSE:SHBI) and TCF Financial Corp. (NYSE:TCB) have filed the paperwork and are waiting approval from the Treasury. Northern Trust Inc. (NYSE:NTRS) and Goldman Sachs Group Inc. (NYSE:GS) have also said they want to return TARP funds as soon as possible.

Why the rush to repay funds that are supposed to stimulate lending and help thaw the credit crisis?

As Dealscape covered in March, the list of demands the TARP funds impose on financial institutions keeps getting longer. Banks under TARP must:

  • conform to executive pay caps
  • have been told to put off evictions and modify mortgages for distressed homeowners
  • must slash dividends
  • withdraw job offers to citizens outside of the United States
  • cancel conferences
  • cancel partnerships with local companies and sports teams
  • cancel employee perks

Update II: This article outlines the process a financial insitution which took TARP money would have to go through to return the money.

On March 31, four institutions publicly announced their repurchase of the preferred stock they previously issued to Treasury, the first such transactions which have occurred. Treasury has posted on its website a form of letter agreement to be utilized for public institutions desiring to make such repurchases. Any such repurchase transaction must be approved by the institution’s federal regulators.

Presumably those 4 are part of the 5 banks listed above. And, regulators could still disapprove of the transaction, so the Fox story could be correct on its facts, but the broader implication do not appear to be accurate.

FILED UNDER: Economics and Business, Government, ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. raoul says:

    Sorry, but Fox news is not reliable (and I do not believe the story as reported)- find a better source and then we can talk.

  2. steve s says:

    Overall, we see a rather serious push for government to be further and further involved in micro-managing industries and companies in those industries. Perhaps this is a good thing, but I’m very skeptical.

    I know, I’m right there with you steve. I’m so glad all those Credit Default Swaps were unregulated. If they had been regulated like the insurance products they were, and companies like AIG had been forced to put aside money in case they went sour, god, that would have just been too horrible to contemplate. Lets you and me join Glenn Beck in crying for the fate of the free market under the Marxist gun stealing First Muslim. Woe is us!

  3. steve s says:

    Oh the woe, as Obama’s iron grip strangles our glorious financial and auto sectors. Ohhhhh!

    (faints dead away)

  4. odograph says:

    I think any bank that wants out should be able to give the money back. In fact, just a few threads ago I said that was the way to limit intervention to real “bailees”

    I am curious about this case for that reason, and look forward to it being disassembled at Calculated Risk or The Big Picture.

  5. Zelsdorf Ragshaft III says:

    I do not buy GM products, nor do I spend money at AIG.  No one helped me pay for my house.  My house payment was paid no matter the value of the house because I signed a contract to pay for the place.  If someone came to my house to try to take my money for whatever reason, I have the right to use deadly force to defend myself.  Yet, the federal government takes my money to pay for things I do not want.  I have a solution for those of you who have not found a way to untie themselves from the support of others, be it parents or the government.  You gather all of yours and we will gather all of ours.  We will meet on a field somewhere and resolve the issue once and for all.  The good thing for me is win or lose, I will not have to pay, for if I must give my life for liberty, so be it.  But you will not it take without a fight.

  6. sam says:

    RICO laws are now used against corporations instead of against organized crime

    Yells a cynic from the back of the room, “What the hell do you mean ‘instead of’?

  7. Alex Knapp says:

    A one-sourced report by a non-reporter that does not name any names or provide any means of verification is not, I fear, entirely reliable…

  8. Steve Verdon says:

    steve s,

    You did notice the article pertains to companies not involved in CDS and CDOs and institutions that are healthy. This isn’t AIG or Lehman, but healthy companies.

    Now that being said, it is just one report with no details and no way to verify it. But if it turns out to be true, it will be worrisome. Why punish banks that have actually done the right thing?

    So, assuming it is true steve s, can you explain it?

  9. sam says:

    Yeah, Alex, and this is a nice touch:

    Here’s a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation)[emphasis added].

  10. sam says:

    Here’s another take on the issue:

    Take this TARP and shove it? Not so fast.

    Granted, Goldman’s not “small”. On size, See

    Four Small Banks Are the First to Pay Back TARP Funds

  11. steve s says:

    Why punish banks that have actually done the right thing?

    You must not remember Paulson’s explanation last year for why they did that.