Too Big to Succeed

The Banks are trying to get out of their TARP obligation, but Treasury keeps on pulling them back in. One reason? The Feds don’t want their lemons to show:

A source familiar with the situation indicated there was a sense of hesitancy within the Treasury Department to let TARP recipients pay back the government funds. That’s because doing so could send a signal to the markets about which banks are strong and which are not.

Treasury officials would not comment on which institutions, if any, have approached the agency about repaying the funds early.

This strikes me as a bad argument. In part, I don’t know why investors wouldn’t know which banks are healthy (as the article goes on to point out). Moreover, it strikes me of more of the same bad, cross-subsidization, thinking. If it is true that certain banks are strong enough to stand on their own, let’s permit them to return our money. Maybe doing so would reinforce public support for emergent interventions in the market. And if that means that other banks face more pressure to come clean faster … well, isn’t that what we want?

You may also like...

3 Responses

  1. Brett Bellmore says:

    It doesn’t make a great deal of sense if the object of this exercise is to rescue the private sector, but if it has morphed into an effort to seize control over the private sector, it makes perfect sense. You let some of the banks off the hook, you don’t have an excuse to push them around anymore.

  2. A.W. says:

    I second what Brett said, and add that I thought it was generally frowned on when a private sector lender loaned to a private sector person and wouldn’t let them pay off their loans faster. that was considered abusive. but if you want out from under Uncle Sam’s thumb, well, we can’t let you do that.

  3. Great post title. And just think, if we actually did manage to save all these banks, we’d start spending antitrust enforcement money again to keep them from acquiring market power. Wouldn’t it be easier for us to embrace the fact that the failure of these behemoths is what healthy capitalism looks like?