05 May 2009
The Jilted Wife Syndrome
Let him or her who has never bought consumer goods or a home on credit cast the first stone. Last year, Hank Paulson, Ben Bernanke and the rest of the Bush Administration suddenly realized that the piper was demanding payment—that the buyers of credit derivatives who had enabled the incredible expansion of the U.S. economy were now conserving their cash. The Bushies had mistakenly concluded that all that was needed to avoid a devastating financial contraction was to put the full faith and credit of the U.S. Government behind the country’s principal issuers of consumer credit—the banks. And so, they compelled the banks to accept federal TARP funds.
By the time a new Administration succeeded in power, it was clear that the TARP funds could not alone restore the glory days of old. More direct measures would be required--a program of spending stimulus designed to create the economic activity that would demand the creditworthy business and consumer loans that banks make money on providing. But the Obana team were embarrassed by the terms on which the TARP funds had been crammed down on the banks.
Of course, the banks, even if reluctantly, accepted the TARP funds but refused to put them to uses that would have a high likelihood of default—like more sub-prime loans. They preferred to devote them to assuring future growth—preserving monetary capital through the payment of dividends and preserving human capital through the payment of “bonuses.” But the politicians and the media commentators now had a convenient scapegoat for the public’s economic discomfort—the banks who had jilted them. As Arianna Huffington characterized Goldman Sachs on May 5, 2009, “the banking giant is acting like a man who wants all the benefits of being married while still being able to slip off his ring and have an affair anytime he feels the urge.”
Fidelity is not the only responsibility of marriage. Retaining the capability to sustain the relationship over time is another one, at least as important. The banks’ shareholders, many of them employees and executives, have suffered great loss of wealth along with the rest of the economy. Let them play their role in the recovery by not depriving them of the capital, both monetary and human, that they will need to respond to increasing loan demand.
Let him or her who has never bought consumer goods or a home on credit cast the first stone. Last year, Hank Paulson, Ben Bernanke and the rest of the Bush Administration suddenly realized that the piper was demanding payment—that the buyers of credit derivatives who had enabled the incredible expansion of the U.S. economy were now conserving their cash. The Bushies had mistakenly concluded that all that was needed to avoid a devastating financial contraction was to put the full faith and credit of the U.S. Government behind the country’s principal issuers of consumer credit—the banks. And so, they compelled the banks to accept federal TARP funds.
By the time a new Administration succeeded in power, it was clear that the TARP funds could not alone restore the glory days of old. More direct measures would be required--a program of spending stimulus designed to create the economic activity that would demand the creditworthy business and consumer loans that banks make money on providing. But the Obana team were embarrassed by the terms on which the TARP funds had been crammed down on the banks.
Of course, the banks, even if reluctantly, accepted the TARP funds but refused to put them to uses that would have a high likelihood of default—like more sub-prime loans. They preferred to devote them to assuring future growth—preserving monetary capital through the payment of dividends and preserving human capital through the payment of “bonuses.” But the politicians and the media commentators now had a convenient scapegoat for the public’s economic discomfort—the banks who had jilted them. As Arianna Huffington characterized Goldman Sachs on May 5, 2009, “the banking giant is acting like a man who wants all the benefits of being married while still being able to slip off his ring and have an affair anytime he feels the urge.”
Fidelity is not the only responsibility of marriage. Retaining the capability to sustain the relationship over time is another one, at least as important. The banks’ shareholders, many of them employees and executives, have suffered great loss of wealth along with the rest of the economy. Let them play their role in the recovery by not depriving them of the capital, both monetary and human, that they will need to respond to increasing loan demand.
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