Obama Administration Targeting Bank Chiefs For Axe?

If you want to know the real reason why so many banks are suddenly so interested in getting out from TARP restrictions, look no further than Obama's advisers and their statements.

They want heads to roll.

Elizabeth Warren, a Harvard law professor and chair of the congressional oversight committee monitoring the government's Troubled Asset Relief Program, told The Post that letting banking leaders off the hook for the mess their companies are in will plunge the country into a deeper hole.

"The management of the institutions receiving subsidies from the government must be replaced," she said in an interview last week.

Warren picked out the head of Citigroup for special mention, but will recommend all bailout recipients -- which include Goldman Sachs and Bank of America -- get the same clean-out at the top.

She said failure to do so in past financial crises -- particularly in Japan in the 1990s when that country's government handed out cash but left banking leaders in their jobs -- slowed recovery drastically.

"It is crucial for these things to happen," she said.

"Japan tried to avoid them and just offered subsidy with little or no consequences for management or equity investors, and this is why Japan suffered a lost decade."

They want private companies to fire their chief executives on the government's say so.

Since when has the government ever had this power to so intrusively and boldly take such power into their hands? And, since we're talking about government demanding heads on platters, where are the heads of Franklin Raines and others at Freddie Mae and Fannie Mac who oversaw the house of cards that came tumbling down on all the banking institutions that were forced to lend to subprime borrowers?

Japan propped up the banks and spent hundreds of billions on government programs that resulted in a stagnant and moribund economy for a decade. Firing private sector business leaders isn't going to achieve a turnaround. It's just a way of passing blame on the situation to a group of business leaders rather than on government intrusion into markets with Congressional and Presidential dictates that pushed banks and lending institutions to lend to those people who had no business being homeowners. When the real estate market crumbled, the subprime borrowers did what they do best - default, and the combination of mark-to-market and government rules meant that banks suddenly found themselves with the capital needed to make further loans. That, in a nutshell, is the American experience.

What Japan did is a lesson in what not to do, and yet the Obama Administration is trying to outspend the Japanese, and they're blaming the financial crisis on the business leaders of banks, some of which didn't want TARP money in the first place but were pressured into doing so by the Administration.

Don't believe me? Just ask bankers:

Some New Jersey bankers are saying they may give back to the government millions of dollars in Troubled Asset Relief Program money.

They say they didn't really need it, and they believe the government went too far when it imposed new restrictions on executive pay and other spending by TARP recipients, changing the rules after deals were done. They also are worried about more rules under consideration by lawmakers in a politically charged anti-banker climate.

"They want to pass legislation where you can't even have a golf outing," said Gerald Lipkin, chief executive officer of Valley National Bancorp, which received $300 million, more than any other New Jersey-based bank.

And please, he insists, don't call it a bailout, noting that Valley and other banks are paying dividends to the U.S. Treasury of about 8 percent a year, pre-tax. Lipkin and other top executives at Valley took big pay cuts in 2008, forgoing year-end bonuses to satisfy federal authorities. "Two-thirds of our compensation is bonuses. Now we can't do that, and that came through retroactively," he said.

Valley is considering joining other banks around the country in buying back the preferred shares it sold to the government to get more money to lend.

Oak Ridge-based Lakeland Bancorp, which received $59 million in early February, also is having second thoughts. Lakeland CEO Thomas Shara said TARP recipients have been unfairly stigmatized by lawmakers and the public to the point where it may be hurting their business. For customers, prospective customers and shareholders, the bank's TARP participation turned out to be "more a negative than a positive," Shara said. Giving the money back "is something we are evaluating," he said.

As I said above, where are the criminal charges and actions against the staff at Freddie Mac and Fannie Mae for their failure to oversee mortgage lending standards, which they purposefully watered down to the point that anyone could receive a mortgage on little more than a person's say so.

Freddie and Fannie executives have gotten a free pass, including from having to give back bonuses. That's despite the fact that these two entities were at the heart of the credit mess and defaults.

Income verification was passe, as was the ability to document the ability to repay. It was free money, and it did wonders to artificially boost the real estate markets to unsustainable levels. When the lending dried up, so too did the real estate market boom, which came to a thudding crash. Without the new borrowers, sellers were left holding the bag and prices began to plummet in many parts of the country.

Now, after nearly two years, prices are starting to align with what they should have been all along, rather than grossly inflated prices that made many parts of the country unaffordable even under government affordable housing lending programs.

Instead of letting the markets sort this out, the Administration is pushing to impose its will on the private sector in ways that would make the Founding Fathers blush at the overt ignorance of Constitutional limits on federal authority.