The Treasury Department has created a committee to determine the direction more money than most countries have. This is our money, the taxpayers, (actually, it’s our children’s and our grandchildren’s money as it was borrowed from the future). It would be nice if this panel of assistants was a publicly transparent body, after all, it is our money. But this is not the case. According to the New York Times, “Treasury officials have refused to disclose their criteria for deciding which banks are healthy enough to get money and which are too sick.”
So far the panel has doled out $125 billion of the overall package. Who did they give the money to? Why, the nine largest banks, of course. According to a 60 Minutes interview the Bank of America CEO Ken Lewis, his bank received $25 billion regardless of the fact that they did not need to be bailed out. Bank of America never invested in shaky derivatives based on sub-prime mortgages and is in pretty good shape as a result. According to Lewis, however, the banks were not given a choice. The reason? If a bank refused the loans it demonstrated that they were stable and wise investors, and that would be an unfair competitive advantage. Future customers might abandon their unstable and unwise banks in favor of banks like Bank of America. If everyone took the money then no one would be able to tell who the unstable banks were. OK. Isn’t that what free market principles are all about? We informed investors do business with the best companies to maximize personal results? Just another example of the myth of free market capitalism.
And here’s the rub. The banks are given no direction as to how they are to use the money they receive! It’s hoped that they will use the money to buy out troubled mortgages or to infuse money into the market by making loans more available. But the banks could just as easily sit on the money, or divvy it up among their boards of directors. More likely the money will be used to buy up smaller, more vulnerable banks, leading to a dangerous consolidation of banking power.
The committee is run by bankers like James H. Lambright. Three weeks ago he was the president of the Import/Export Bank of the United States. He took leave to chair the committee responsible for steering billions of dollars. Another is Neel Kashkari, formerly of Goldman Sachs. Hey! Isn’t that the same bank Hank Paulson worked for? Hmmm!
The New York Times seems to think that this small, secretive, vague committee is in over its head. That’s unlikely. It’s more likely that the members are right where their employers want them to be.
See the Commentary Page at the Journal of a Mad Sociologist to meet the committee members.
Disclosure I have had a very negative relationship with Bank of America, having experienced economic hardships for which that bank, one of the wealthiest in the world, put me through the metaphorical ringer. I’m still monetarily indebted to BofA, though my balance is shrinking.