Banks balk at rescue conditions

Wall Street

The New York Times is reporting that some banks are balking over the strings attached to their bailout cash.

Good! That is the right response, and it shows that the Obama policies are right on. This is not a Republican or a Democrat issue — it’s a good government issue. If the banks are willing to take on the risk of failure in order to maintain the possibility of future, outsized profits, let them do it. If they fail, they do so on their own merits. On the other hand, if a bank wants money to stay alive, they have to know they are entering a period of indentured servitude to the American people. They will not be free until they have paid their debt to society, and in this case that debt comes in an easily recognizable dollar amount.

Hypocrites like John Boehner and Richard Shelby argue that some banks should fail because that’s good fiscal discipline, confusing once again the role of markets and the role of government. Markets reflect the sentiment of its local population (i.e. whoever comes to the market). Government has the power to coerce or incentivize behavior when necessary. In times of crisis markets should not be allowed to make decisions because they will make panic driven, emotional decisions. In those cases it is the government’s job to set parameters for acceptible behavior. In this case it means righting financial malfeasance while containing the damage inflicted on the innocent by the crime. No-government Republicans would have the innocent pay along with the guilty. Strings on a bank bailout make sure that the innocent are protected while the guilty work off their guilt.