Sometimes a bailout can actually prevent progress and growth...

I have followed with fascination the debate about whether or not to bailout banks, car companies etc and the long term effects on our economic system.

I was then struck by a recent example of a situation of where there wasn't a bailout for a struggling local business.

A local bar which was in a great location was failing because of poor and inept management--the place was a mess and eventually closed its doors and the owners suffered a significant economic loss. Enter another set of entrepreneurs who picked up the location at a bargain and who went in and did a significant renovation. A new successful and popular establishment emerged--generating lots more revenue and taxes--employing many more people. The question I ask--what would have been gained if the old bar and gotten a "bailout" and had been allowed to stay in business and limp along following its old management ways?

Tell me what you think...

Banks Return TARP Funds to Avoid Choking on Attached Strings

Banks Return TARP Funds to Avoid Choking on Attached Strings
by: Markham Lee March 12, 2009 about stocks: GS / SBNY / WFC

Here is a look at the trend of banks refusing TARP funds, and/or looking to return them ASAP due to the conditions imposed on them by the government:

(From the NY Times): "WASHINGTON — The list of demands keeps getting longer.

Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens.

As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.

The conditions are necessary to prevent Wall Street executives from paying lavish bonuses and buying corporate jets, some experts say, but others say the conditions go beyond protecting taxpayers and border on social engineering.

Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn., and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs (GS) and Wells Fargo (WFC).

They say they plan to return the money as quickly as possible or as soon as regulators set up a process to accept the refunds. On Tuesday, Signature Bank of New York (SBNY) announced that because of new executive pay restrictions in the economic stimulus package, it notified the Treasury that it intended to return the $120 million it had received from the government only three months ago.

These are the sorts of problems you run into when the government has a lot of influence/control/involvement with private industry, because politicians tend to think in terms of political objectives instead of what's best for the business (Exhibit One: the Mortgage GSEs). This is not to say that some of the measures (like limiting bonuses) aren't good ideas, but at the end of the day the government is thinking politics first and business second.

The TARP was sold to us based on the idea that if we have healthy banks we'll have a healthy economy; if that's truly the case the government needs to keep its promise and focus on business first and make politics a distant second. If the goal is to get the banks healthy again so they can pay back the TARP funds, the government shouldn't be engaged in the counterproductive activity of pushing the banks to do things that are bad for business.

You know things are getting ridiculous when banks are refusing TARP funds so they can continue to support community organizations.

This is not to say that the banks should get to define their own terms, or that some of the complaints aren't just whining from executives who want things to be like the "good old days". Instead, I think that the government should stick to whatever terms and conditions agreed to when a particular bank accepted the funds, instead of constantly changing things in a way that makes the banks feel as if they're beholden to the ever changing whims of the government. I also think that the government should be thinking in terms of getting the banks healthy enough to payback the taxpayer, as opposed to pushing the banks to serve their political objectives.

You can read more here.

Source:

The NY Times: "Some Banks, Citing Strings, Want to Return Aid" -- Stephen Labaton, March 10, 2009.