Gifts and Loans

The NYTimes editorial page (which endorsed the $700 billion bailout one month ago) now bemoans the behavior of recipient banks.

Now, lo and behold, with $250 billion in bailout funds committed to dozens of large and regional banks, it turns out that many of the recipients of this investment from taxpayers are not all that interested in making loans.

Shockingly, the banks are not using the government's gift to extend loans, but to... wait for it.... buy up smaller, more profitable banks. That way, if JP Morgan Chase fails, an even bigger chunk of the banking industry goes down with her. Banking executives naturally want to protect their own futures, and ensure that everybody in the industry keeps getting a paycheck. Getting a big fat check from Uncle Sam is not going to turn them into philanthropists.

As I wrote to my Congresswoman last month,

Remember, what brought on this crisis was exuberant lending. No amount of bailing out is going to make bad loans look good to bankers now. An unsound business model is still going to be unsound, even if a government handout allows it to be solvent for a few extra weeks or months.

Banks behavior is perfectly rational. And perhaps politicians' behavior is also rational: they want to protect their jobs and benefit those who donate to their campaigns.

Will voters be rational next Tuesday, and throw out da bums? Here's a clarion call to voters of both parties: if the incumbents in your district and state voted for the bailout, vote against them on Tuesday. Let them know that we disapprove in real polls, not just the ones pollsters conduct.