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.