Too Many Strings Attached

Megan McArdle from The Atlantic:

Apparently, the restrictions that Congress is putting on bailout monies is pushing a number of institutions to give the money back.

What to think of this? One's first instinct is to say that this is an unalloyed good--the restrictions have made taking the funds costly enough that only truly troubled institutions will do so.

The problem is, that's precisely what the Fed was trying to avoid. Central bankers have long made a practice of keeping it a secret who borrows from them at the discount window, because publishing the names of those who need a temporary cash infusion could trigger a bank run. In order to get the money into the banks that needed it to stave off a liquidity crisis, Bernanke and Paulson very deliberately asked banks that were widely believed to be sound to take the money too. Otherwise, the government bailout funds might have touched off the very crisis we were trying to avert.

I guess the price of doing their "patriotic duty" was too high. It was bad enough for the banks taking the money they didn't need to be painted as a potentially failing bank. To accept the conditions that were pushed on them later at the risk of becomng a failed bank for real was just too much.

I wrote about this back in early February.

I think the idea of not paying the price for someone else's irresponsibility is gaining traction.

She goes on to make another good point:

It's also possible that some of the measures that express our collective rage at the bankers could tip the banks over the edge. It's satisfying to make AIG cut out junkets for independent insurance agents, but it also probably means that fewer AIG policies will be sold. Since we now own the company, we probably cost ourselves money in order to express our outrage. Similarly, watching the conga line of Merrill's top performers snaking up Wall Street to other firms, one can't help but wonder if B of A shareholders did themselves any favor by complaining about the bonus structure. The major assets of these institutions are client relations and human capital that tend to adhere to the individual, not the firm.

To reverse a popular phrase, "If you bought it, don't break it!" Like it or not, we're now stockholders in AIG and the like. If we want our money back some day we'd better support those businesses.