Even a better example is federal title 1 money for schools. The money was created to “level the playing field” between rich states and poor states, and rich districts and poor districts. Of course, every state got some money also. Now that the schools are hooked because of the constant upward pressure of education spending (rightly or wrongly), the districts and states can no longer say no to title 1 funds. In comes No Child Left Behind.
It’s hard to argue that No Child Left Behind (and by extension, the federal government) is the primary driver of educational policy, not parents or local school boards. Accountability is all well and good but the question is, accountability to whom?
The same is now true of bailout money. After banks have accepted the cash and have no choice but to hold it, the federal government is imposing terms after-the-fact to control the banks. This is, in effect, “good enough nationalization” (where the government controls the aspects of a business it cares about and leaves the mundane details it doesn’t care about to the business). Bill Cooper, for instance, wants to give the money back.
Rep. Barney Frank wants all recipients of federal money to be subject to end-to-end wage controls on all employees. That’s the most flagrant example of overreach to date. Of course, banks got desperate and held out their hands. Now the federal government is calling the tune.
The result is that an ever-widening portion of a major industry will fall under federal control (in part because no one wants to invest in financials anymore). As with most things, it will be the consumers and citizens who have to pay the ultimate tab but never seem to reap any of the benefits. Hopefully the banks can give back the money before it is too late.
Article comments
1 - Ruvy
Nice to see you back, John! At least here.
I only have one serious question - about TCF Banks. They used to be known as Twin City Federal. When they merged with Minnesota Federal years ago, they took the name TCF, and eventually took the name TCF Banks (the merger reflected our marriage 21 years ago - one of us banked at Minnesota Federal, and the other at Twin City Federal). Are they still operating out of the Twin Cities or has some Chicago institution swallowed them up?
The other question is - when those $100 bills finally become worthless, are you going to use them for toilet paper or wall paper?
2 - Joanne Huspek
I opt for wall paper, Ruvy. I prefer the much softer Ultra Charmin for butt wiping. :-)
I find it curious that the government was so hot to trot to "pressure" banks to take the money. Foot in door, perhaps? The first step to complete takeover?
You know what they say, when business and government get in bed together, no one gets any sleep.
3 - Cindy
Maybe the government is giving out a commissions and bonuses to regulators who get banks to take state funds.
4 - Ruvy
Joanne,
Since you live in Michigan, not too far from the toilet-paper capital of the world, Wisconsin, you should be able to continue to get toilet paper once the dollar tanks. The real question is, if you are going to use C-notes for wall-paper, how will you pay for the toilet paper? Can you barter something in exchange? Or are you going to use the gold shekel that will come into use, shortly?
[Ruvy exhales, and takes another deep hit on the Hashish. The sunset appears beautiful in deep green and orange hues as Ruvy prepares to greet the night and the beginning of yom Hamishí.]
5 - handyguy
The reason the government [and this was Paulson/Bush] pressured all the largest banks to take TARP money was to avoid having any institutions stigmatized by taking it -- in other words, if some large institutions took the money and some did not, the stigma could put additional market pressure on some banks to close. In light of what had just happened to Lehman Brothers, this was seen as too dangerous.
Similarly, the Obama administration is not eager to quickly accept TARP money back from one or two banks, because this could put competitive pressure on several others to do the same. And this could speed up bank failures and a possible market catastrophe.
This is all about caution, trying to avoid a meltdown, not a conspiracy to extend government control. Of course, it's useless to expect the ideologues and the hotheads to even try to see things from another point of view.
6 - Baronius
Interesting article. It got me thinking about pressure. We keep hearing about how the banks pressured innocent people into signing bad deals. Now banks are complaining that they got pressured into accepting Treasury money. What's these people's problem? If my dating life is any indication, there are still plenty of people who can say "no, thank you" to a lousy offer.
Grow up. You borrow money from a loan shark, you're going to be paying for the rest of your life, whether that loan shark operates a pool hall, a credit card company, or the Free World.
7 - handyguy
Rep. Barney Frank wants all recipients of federal money to be subject to end-to-end wage controls on all employees. That's the most flagrant example of overreach to date.
This is a distortion reminiscent of John Bambenek's amusing, ridiculous and almost entirely fictional "War on Christmas" series.
From Reuters:
Frank told the conference that lawmakers will be working on legislation to restrict excessive compensation at companies that receive capital infusions from the U.S. government, but said the restrictions will not apply to other financial rescue efforts, such as the legacy asset plan.
"We are going to be dealing with a bill ... that tells the secretary of the Treasury to impose restrictions so compensation cannot be excessive or unreasonable," Frank said. "It will apply to only those institutions that took an infusion from the TARP."
I'm not sure what JB means by end-to-end, but the restrictions are going to apply to the kind of million-dollar paychecks that caused 'AIG rage,' and certainly not to anyone making less than $250,000. The restrictions would also cease to apply when TARP funds are repaid.
Frank also says he welcomes banks giving back the money, and that investors 'shouldn't' assume that banks who keep the money are too weak to invest in.
[I'm not sure he's entirely on the same page as the administration on that one -- the president's team may cautiously continue to fear that investors will think exactly that, and refuse to invest in TARP banks, so the administration may not be so eager to encourage the quick return of TARP funds.]
8 - Cindy
There is no skill involved at all in becoming a manipulative sales agent whose sole mission is to find weakness and exploit it? They don't practice day and night to accomplish this? Deceptive sales tactics that prey on any sense of inexperience or trust are unheard of?
Oh, right, people shouldn't trust anyone. It's the American way. People should have an inherent knowledge that everyone is automatically against them, no matter how kind or helpful sales people seem. And if people are naive on the subject?--too bad. That's their fault. In Capitalism the naive are scoffed at. It is the job of salespeople to exploit them. The inexperienced are prey. And if they get eaten, they have no one to blame but themselves.
In my experience, many kinds of salespeople are soulless and well-trained in being so.
9 - roger nowosielski
The new slogan for the American way:
"Everybody is a motherf ....er!"
10 - Joanne Huspek
If Ruvy has hashish, I'm nostalgic... Actually, I've been honing my other skills for eventual bartering in the New Depression. Gotta have 'em, since I'll be working like a slave until I die.