Loose Change

According to the April 14^th theDeal.com, here is a list of the strings that financial institutions who have received TARP funds must deal with:

• conform to executive pay caps
• have been told to put off evictions and modify mortgages for distressed homeowners
• must slash dividends
• withdraw job offers to citizens outside of the United States
• cancel conferences
• cancel partnerships with local companies and sports teams
• cancel employee perks

So if the economy is still “impaired,” if you are a bank and have been forced to layoff masses of employees because of the recession and you want to overpay/over-perk you senior employees (who cares about the shareholders anyway – including the government), evict some homeowners without modifying their mortgages, and you don’t care if you lend new money (a major part of the government’s policy behind TARP), why not repay that TARP money and head directly to the trough for some yummy slop?

Hey, that’s a free market. One of the most basic realities about a market-driven business world is that companies seldom incur major costs or restrict their “accepted compensation/perk” packages to foster the general social good – including such wonderful things like screening food for bacteria, increasing automotive fuel mileage numbers, performing safety checks on products and medications, cleaning and detoxifying the environment, providing retirement plans to more than the most senior executives… and even paying taxes. To remain “competitive” and cover the most senior management perks, most companies will do just about anything to side-step regulations, even if a few folks have to die in the process.

Some might remember the Ford Motor Company decision to keep the popular Pinto automobile in circulation without a recall, since the cost of fixing the badly situated gas tanks (that tended to explode in certain collisions) was less than the cost of settling the eventual lawsuits that would be filed by the estates of the deceased and incinerated victims. The hard fact is that we have a government for a reason. It cannot be a completely free market. We can’t have companies lying about their ingredients, selling poison-invested foods and destroying the economy at the expense of everybody else.

The argument about retaining the “best and the brightest” with excessive bonuses and lavish perks is not sitting well with average voters. As these banks seek to pay back money solely to avoid regulations and limitations on matters that have been a major problem that helped tank this economy in the first place, we can only wonder why the “best and brightest” who created and marketed the subprime derivative market, who fostered credit agencies giving undeserved ratings to toxic financial instruments, who constructed the over-leveraged world of home ownership and private equity acquisitions should have their excessive pay and perk package restored well before stability will have returned to the economy.

There is another, equally ugly, side of the move to pay back TARP money – judgment by the financial community. Although there have been serious questions raised about how investment-bank-turned-commercial-bank Goldman Sachs may have made itself look better by possibly hiding massive losses with an artful change in its fiscal year, the April 14^th NY Times addressed Goldman’s moving towards its own payback of TARP money: “Goldman’s action has put pressure on other financial institutions to do the same or risk being judged in far worse shape by investors. The administration feared that details on healthier banks would inevitably leak out, leaving weaker banks exposed to speculation and damaging market rumors, possibly making any further bailouts more costly.” The administration has determined to release at least some particulars of their stress test analysis of the 19^th largest banks. The information should be very interesting.

If Wall Street does not see the extreme disconnect between them and Main Street , if they participate in prolonging this managed depression by creating an environment that will prolong the credit freeze, at some point, voters are really going to demand vaster more accountability. Maybe TARP recipients shouldn’t have such an easy path to pay back the loans – the price to America might just be too high. When those considering a payback include the Bank of America or CitiGroup, it’s time to look a little deeper into the overall impact on the credit markets and our timeline for recovery.

In his April 14^th morning address at Georgetown , President Obama spoke about the “perfect storm” of irresponsibility and bad decisions, both in government and the private sector, and the “climate of fear” that remains in the credit markets. His clear goal in placing federal money into the financial system was to create the “multiplier” effect of banking capital that would create more money flow into our economy than any other path. But in the end accountability isn’t always easy; it is always necessary.

I’m Peter Dekom, and I approve this message.