Friday, February 27, 2009

The Coming Bank Dichotomy

We recall from the Panic of last fall, and subsequent imposition of TARP funds upon US banks, that there was at least some degree of clamor from institutions who felt that they did not "need" any TARP money. That resistance movement turned out to be a short lived one indeed, as Paulson and Company did not want to expose an institution as "sick" for visiting the Government trough. The ensuing weeks saw the Government spread TARP funds across the nation, often in a politically selective fashion, to institutions large and small.

Interestingly, today has brought the first announcement of an insitution that has decided to return its TARP money to the Government. Apparently, Iberiabank Corporation of Lafayette, LA has decided that paying 8% for Government money is too expensive. Now, this decision makes complete logical sense. As the populist roar has been amplified, and the punitive Administration rhetoric has revved up, one would only expect that any TARP recipient able to do so would return the money(perhaps the executives are planning to make a deposit on a new Gulf Stream jet this weekend). 

We feel certain that many others will follow suit in the coming weeks and months, and choose to settle up with the Government. Of course, only the strong institutions will be in a position to do so. Once this process has had some time to unfold, there should emerge a clear dichotomy between those insitutions who have freed themselves from the shackles of the TARP money, and those who are too feeble to be taken off of life support. The irony is that, in the end, the Government will be unable to prevent the very circumstances it sought to avoid at the onset of the TARP program. The Government's bumbling, onerous oversight will cause the willing and able to flee, while pulling those sick insitutions further into the abyss. This is at least how we see it. 
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