There is a view shared by a minority of elite Republicans that it’s wrong to criticize the bonuses and other spending of banks and financial institutions that took TARP funds, particularly now that the heat is on following the classy moves of John Thain of Merrill and the idiotic Ken Lewis of Bank of America in buying Merrill. After all, they’re private businesses, everyone takes some subsidies of one kind or another, money is fungible, and it’s unseemly for the government to care.
What?!? This is the kind of “let them eat cake” corporate nonsense that will kill conservatism as a viable political movement. Anyone who suggests we mount the least defense of this is living in a bubble. There are not enough guys on Wall Street to keep the Republican party elected. Many people are Republicans because they’re cultural conservatives, small businessmen, limited government types, or some combination of the three. They’ve been skeptical of the TARP from day one. But you can’t say, “Give me money or the economy will implode” and then, in the next breath, congratulate yourself for your business acumen and the glories of the private sector. Merrill, BofA, and everyone who has taken the TARP funds are no more private businesses now than the TVA or Fannie Mae and Freddie Mac. And this crap about the funds being fungible is utterly insulting. That’s the whole point of the criticism: that bonus money could have contributed to these firms’ operating capital.
To me the proper concept is “tracing” or “fiduciary duty.” Until these funds are paid back in full to the US Treasury, any extravagant or unneeded expense should be put off. No one should get a nickel in bonuses unless tied to direct individual productivity, let alone the several billion that the $40B loser Merrill leaked right before being acquired by Bank of America. While I wouldn’t demand they all get on the GS schedule, it wouldn’t bother me terribly if they were required to do so.
The business model of Wall Street for many years now has been one of opaque financial engineering, siphoning off profits in the form of enormous bonuses, crazy risk models, and, now, massive subsidization coupled with the arrogant defense of business as usual. If folks don’t like the TARP funds, let their companies not take them and let their employees go elsewhere. Surely a legitimate business out in the heartland could use someone who can make a twenty-tranche asset-backed-security for ultimate sale to Fannie Mae. Yeah, right, and go bus those tables while you’re at it!
I don’t buy this argument the Wall Street Journal has proffered that Merrill and the big banks were all “forced” to take TARP. They didn’t have to, and people that didn’t want to live under the kind of scrutiny such huge subsidies rightly entail can go elsewhere or go out of business. There’s few other places to go, of course, because the economy is in the tank. That’s their real fear. The world is starting to realize that the value added from much of the activity on Wall Street is highly dubious. Contracts that are legally enforceable have always been subject to “public policy” exceptions, and massive gains of money that do not ultimately get channeled into productive investment have long been subject to regulation and prohibition under the rubric of gambling or usury.
I have no problem with people making lots of money, particularly folks that develop, invent, manage, or otherwise run a productive business or invest in the same. I’m glad someone like Henry Ford or Bill Gates made it big. I do however have problems with people making lots of money in an industry whose benefit for the rest of the society is dubious, whose chief productive activity in recent years has been making impenetrable instruments that defy honest valuation, and who have now come hat in hand to beg for public funds, even though they’re balk when they’re told they might have to cut expenses like every other person and every other business in America. It’s a ridiculous, insulting, crony capitalist style of behavior that is more reminiscent of Mexico or Indonesia. It should not be defended by those who purport to believe in free markets.