Bailed-out banks might as well be in business with the mob

April 9, 10:47 AMCivil Liberties ExaminerJ.D. Tuccille

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When did Al Capone become Treasury Secretary?

Organized crime has a long history of "buying into" legitimate businesses, whether the original owners are interested in acquiring partners or not. Those businesses are then redirected to ends favored by the mob, often at the expense of their long-term viability. The actual owners are pushed aside, of course, with little or no hope of winning back control of their companies.

So, is it too much to compare recent actions by the government to those of organized crime? You tell me.

Back in October, with the Troubled Asset Relief Program (TARP) bailouts for banks a hot topic in the news, some reports included the surprising information that many of the banks being "saved" by infusions of cash didn't want the money, but were being arm-twisted to go along with the program. Said the Washington Post:

At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady Adams said he has more than 2,000 loans outstanding and only three borrowers behind on payments. "We don't need a bailout, and if other banks had run their banks like we ran our bank, they wouldn't have needed a bailout, either," Adams said.

The opposition suggested that the government may have to continue to press banks to participate in the plan. The first $125 billion will be divided among nine of the largest U.S. banks, which were forced to accept the investment to help destigmatize the program in the eyes of other institutions.

The New York Times had a bit more detail:

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left. ...

Analysts say the United States was forced to shift policy in part because Britain and other European countries announced plans to recapitalize their banks and backstop bank lending. But unlike in Britain, the Treasury secretary presented his plan as an offer the banks could not refuse.

Once in bed with their new business associates in D.C., bankers have found that, as with the mob, breaking away from an unwanted partnership proves as difficult as resisting the advance to begin with.

From business journalist Stuart Varney, writing April 4 in the Wall Street Journal:

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.

Varney writes of the unnamed bank executive's fear of the "dead hand of government threatening to run his business," and that executive isn't alone. In February, Forbes columnist John Tamny cited examples of government officials using their new leverage over banks to impose policy changes and make politicized business decisions for once-independent companies. Tamny warned: 

With the acceptance of TARP funds, apparently banks can no longer exclusively seek profits. They must use the money of depositors to forward the desires of a new and very intrusive shareholder: the federal government.

Mobbed-up trucking companies, government-controlled banks -- what's the difference? In the end, an offer you can't refuse is an offer you can't refuse.

email J.D.: civilliberties (at) tuccille.com