However, the Administration is proving itself more adept at changing the rules to maintain control over the financial institutions than it is at filling slots at the Treasury Department. They are now telling banks that they can't escape the TARP program, even if they want to.
I must be naive. I really thought the administration would welcome the return of bank bailout money. Some $340 million in TARP cash flowed back this week from four small banks in Louisiana, New York, Indiana and California. This isn't much when we routinely talk in trillions, but clearly that money has not been wasted or otherwise sunk down Wall Street's black hole. So why no cheering as the cash comes back?It is all about control, and now that the door was opened by the Bush Administration as a temporary measure, President Obama pushing ahead with a series of corrosive and destructive policies that will undermine the US fiscal and monetary system all in the name of expanded government control.
My answer: The government wants to control the banks, just as it now controls GM and Chrysler, and will surely control the health industry in the not-too-distant future. Keeping them TARP-stuffed is the key to control. And for this intensely political president, mere influence is not enough. The White House wants to tell 'em what to do. Control. Direct. Command.
It is not for nothing that rage has been turned on those wicked financiers. The banks are at the core of the administration's thrust: By managing the money, government can steer the whole economy even more firmly down the left fork in the road.
If the banks are forced to keep TARP cash -- which was often forced on them in the first place -- the Obama team can work its will on the financial system to unprecedented degree. That's what's happening right now.
Meanwhile, Treasury Secretary Geithner continues threatening to fire bank CEOs. Henry Blodget thinks that this is a natural outgrowth of the double standard between the way that the administration was treating Detroit and the automakers and Wall Street. There is no double standard; the auto industry, for all of its heft and size, is an emotional attachment to a bygone era. Wall Street is the lever on which all capital and investment passes. In the course of the toxic paper crisis, Wall Street's facility to provide new credit lines evaporated. That was the crux of the reason why the Bush Administration felt the need to act so precipitously and intrude into the marketplace with the TARP program. The automakers situation is not analogous.
Yet, President Obama essentially fired GM Chairman Jeff Wagoner because he couldn't turn the failed company around quickly enough. That act goes beyond the bounds of what a President can or should do in interfering in the private markets. So, instead of using that as a cautionary tale of how government interference in the marketplace has gone too far, Blodget is going in the exact opposite in calling for more government intrusion into the marketplace, despite repeated examples of government miscalculation of the value of companies and pressure to make deals.
The government opted to bailout AIG instead of letting it go the route of bankruptcy, and sent hundreds of billions of dollars into that morass. The government tried to arrange shotgun weddings for multiple banks, and each time seriously and egregiously miscalculated the value of the parties involved.