I really, truly, don’t want this be a political blog, but sometimes it is impossible to separate politics from the economy, especially when rules made in Washington impact the economies of Wall Street and Main Street so much.
Whether or not we should have ever created the TARP, whether or not we should have ever bailed out AIG or any other bank or auto industry, that is all now irrelevant. The fact of the matter is that we did, and the question is, "How do we go forward?"
I think it is interesting to note that TARP, when rearranged, spells "trap," and many banks and financial institutions are finding that out the hard way. Several institutions took the "trap" money, and then Washington created some ex post facto regulations for the recipients of the trap money. And I am not just referring to the "excessive" bonuses that were paid out by AIG. Once an institution took the trap money, they became at the mercy of government intervention and regulation. Should they be able to continue to advertise on television? Should they be able to sponsor golf outings? Should they continue with holding national conferences or conventions? Should they continue to operate as usual, or better yet, should they convene to determine how they should change their business model? Yet, any little expense became an issue with the media, the politicians, and the taxpayers.
Why? Essentially it is because we now have an ownership stake in the company. Like it or not, the taxpayers now have a say-so in institutions that went into the trap, and there is speculation that the taxpayer money will soon be converted from preferred shares into common stock, which would truly give us ownership. We now have voting rights!!!
This now presents a new problem. Taxpayers own companies they never wanted to own in the first place - Banks. Who wants to own a share of a bank that needed to accept the trap money to begin with? But we do. And we own lots of shares. And why do we buy shares? In theory, you would only go long with one anticipation: to make money. And in theory, the more money a company makes per share, the higher the stock price should go. Right? Don’t you think the politicians know this as well? Don’t bet on it.
This week, the President has started a crusade to eliminate the "excesses" in the credit card industry. Lawmakers have expressed concern at certain credit card practices. Maybe they will reduce the rate of interest that a bank can charge. Maybe they will reduce the fees for late payments. While many may applaud Washington’s efforts, keep in mind that credit cards and banks are not philanthropic institutions. They have to make a buck to stay in business, too, and with credit card defaults at all time highs, the efforts in Washington may just lead to another bailout – this time, the bailout of the credit card industry.
This is a major note of concern: First, we use taxpayer money to take ownership stakes in banks we didn’t want to own anyway, and now, Washington is trying to limit the profit that those banks can make…. So how is the taxpayer ever going to get the money back?
It makes you wonder who really got "trapped" – the banks or the taxpayers? Or both?
Of course, these are just my thoughts - Clark's Thoughts.
