THURSDAY DECEMBER 10, 2009

Economic Bully

There is no shortage of bad actors in the economic crisis.  But rarely is the government named on the list.  As it relates to the hotly debated TARP program, the government has become a bad actor.

It was interesting to watch Treasury Secretary Geithner try to explain why small banks are not interested in participating in the TARP program.  His main reason was the small banks want to avoid the negative "stigma" of being a TARP recipient.  That may be part of it.  But I think a more likely reason is the small banks watched how their bigger brethren were treated by the government and want no part of it.

Yes, the government put a great deal of taxpayer's money at risk.  And gave them the right to dictate the rules of the game of TARP.  Their money...their rules!  Perfectly understandable.  If only that was the full story.  Unfortunately, the government did't stop at just making the rules.  They also changed the rules as the game went on, often in pernicious and punishing ways.  Paying back the TARP has become a battle, even for the most financially sound banks.  Look at J.P. Morgan, the soundest of the big banks, and its attempt to sell back it warrants to the Treasury.  In short, the government became one of the bad actors in the economic crisis.  Instead of acting as the benevolent rescuer of the economy, it has morphed into an economic bully.

After watching their big brother get beat up by the bully, is it any wonder the small banks don't want to play?

POSTED AT 1899-12-30 11:33:00.0

KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES

Ken is a Senior Vice President and the Director of the Trust and Investment Services at Alliance Bank, N.A. He has 23 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.

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