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Memo to Obama: Stop Playing the Economic Shell Game

Common stock in the bailed-out banks will do nothing to help the real issues facing the American economy.

by
Martha Zoller

Bio

April 29, 2009 - 12:00 am
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If you lent someone money and that person offered to pay you back early and with interest, you’d take it, right? Not the Feds. They don’t want to take back your money, they want to lend you more. The Feds don’t have much common sense when it comes to the mood of the country. They don’t get it. We are waiting for the other shoe to drop.

Last Tuesday, David Kellerman, the acting CFO for Freddie Mac committed suicide.  I had a flashback  for a moment to early in the Clinton administration when White House Counsel Vince Foster committed suicide. What was so horrible, what piece of information so controversial, that it led men with so much to offer to think the world was better off without them? We may never know.

In the banking world, many have discovered it isn’t nice to have a partner the size of the Federal government. In fact, many of the banks didn’t want to take TARP money but the government –  and particularly former Treasury Secretary Henry Paulson — didn’t want consumers to know which banks were in trouble, so they strong-armed the other banks into taking money they didn’t need. Right now, some of those banks want to pay back the money — our money — and the Feds don’t want to take it. This is a typical government practice but counter-intuitive to basic business principles.

There is about $110 billion dollars left in the TARP fund. The problem is there’s very little evidence that this program is working. While some banks are showing profits, many think the numbers are just being moved around to reflect a profit, the progress is all smoke and mirrors, and it won’t last. Now President Barack Obama’s economic team thinks it can avoid asking for more money from Congress if it converts loans made to banks to common stock. Having the Federal government as the major stockholder in the nation’s banks scares me and it should scare you. The government as shareholder means the Feds can determine hiring, salaries, and a whole host of other issues.  Many of us like the idea of the government controlling corporate executives’ salaries, but what about when they cap everyone’s salaries?

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