IBD: Federal Takeover

By INVESTOR’S BUSINESS DAILY | Posted Monday, April 06, 2009 4:20 PM PT

http://www.ibdeditorials.com/IBDArticles.aspx?id=323910687343049

If it has indeed declined to accept $340 million in payments from banks in Louisiana, New York, Indiana and California, the administration is tacitly admitting that it wants to control those banks as well as others that will try to pay back the taxpayers’ money they took in the Troubled Asset Relief Program.

By refusing repayment, the government can keep the leverage it bought with the bailouts. Banks that still “owe” would not be in position to reject the administration as a “partner.”

This reminds us of mobsters making a small “investment” in a family-owned shop, which is not always wanted by the owners, and then using it to justify taking over the business.

Joseph DePaolo, president and CEO of Signature Bank in New York, one of the four banks making TARP repayments last week, said his company wanted to return $120 million it received because, in part, it wasn’t comfortable with legislation passed that would limit compensation for salespeople. Those limits, he explained, would make it hard to recruit top professionals.

And then there’s the fact that the bank didn’t actually need the money. But, as we have learned, need is not relevant in the era of the bailout.

Andrew Napolitano reported last week on Fox News that he had spoken to the head of a $250-billion bank the night before who said Washington forced him to take TARP funds last September.

Napolitano said this bank “has no subprime loans, it has no bad debts, wasn’t involved in credit default swaps. It didn’t need any money. It didn’t ask for the money and didn’t want it. . . . officials from both the Federal Deposit Insurance Corporation and the Treasury said if you don’t take this money, we will conduct a multi-year public audit of you.”

The Fox News analyst said the bank’s “board was forced to issue a class of stock just for the federal government. The federal government owns 2% of this huge bank.”

That was done under the Bush administration. Enter the Obama White House. Last month, Napolitano said, Treasury told the bank “we own 2%, we’re going to tell you how to run the place.”

“As a result of that minority ownership, they now want to control salaries. They want to see his books, and they want to tell him who he can do business with,” Napolitano reported.

Before his trip to Europe, President Obama, according to Politico, told a group of financial institution CEOs who were unhappy with the federal war on executive salaries and bonuses, “My administration is the only thing between you and the pitchforks.” At the time, that sounded like nothing more than exaggeration.

An incident at the same meeting in which Geithner declined to take a fake $25 billion TARP repayment check from JPMorgan Chase CEO Jamie Dimon also seemed to be meaningful.

Later, says Politico, “Dimon also insisted that he’d like to give the government’s TARP money back as soon as practical . . . But Obama didn’t like that idea — arguing that the system still needs government capital.”

Looking back, these are small signs that reveal the administration’s desire to seize command of the nation’s financial system. The bigger, unmistakable sign is the reluctance — or is it outright refusal? — to take $340 million from four banks trying to be responsible and operate on their own.

This shouldn’t be happening in this country. The private sector and the state are not to be mixed. The American financial system is best directed by markets, not politics. Prosperity and liberty suffer when the latter excludes the former.

© Copyright 2009 Investor’s Business Daily. All Rights Reserved.

WSJ: Obama Wants to Control the Banks

http://online.wsj.com/article/SB123879833094588163.html

Obama Wants to Control the Banks
There’s a reason he refuses to accept repayment of TARP money.

By STUART VARNEY

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?

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.

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.

Think about it: If Rick Wagoner can be fired and compact cars can be mandated, why can’t a bank with a vault full of TARP money be told where to lend? And since politics drives this administration, why can’t special loans and terms be offered to favored constituents, favored industries, or even favored regions? Our prosperity has never been based on the political allocation of credit — until now.

Which brings me to the Pay for Performance Act, just passed by the House. This is an outstanding example of class warfare. I’m an Englishman. We invented class warfare, and I know it when I see it. This legislation allows the administration to dictate pay for anyone working in any company that takes a dime of TARP money. This is a whip with which to thrash the unpopular bankers, a tool to advance the Obama administration’s goal of controlling the financial system.

After 35 years in America, I never thought I would see this. I still can’t quite believe we will sit by as this crisis is used to hand control of our economy over to government. But here we are, on the brink. Clearly, I have been naive.

Mr. Varney is a host on the Fox Business Channel.

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