Monday, February 02, 2009

Avoiding the Man-eater

One of my themes lately has been that regulatory uncertainty in the current political climate being created by President Barack Obama and the Democratic Congress will create a drag on economic recovery by depriving large sectors of the economy of two crucial elements required for healthy levels of investment and spending: stability and predictability.

Applying a similar theme in a somewhat different way, Kevin Funnell explains why many community banks that have been approved to receive TARP funds for use in increasing credit liquidity are nevertheless turning down the government money:

Although reporter Deborah Solomon validly asserts that these rejections are evidence of "push back" against increasing federal control, I think that it's also evidence of a basic lack of trust in the good faith of the federal government in not screwing the entire banking industry, and especially the community banking segment of that industry, out of a fatal brew composed of equal parts political calculation, hubris, venality, personal agenda-pushing, and an overwhelming case of dumb-ass. When community bankers think of the federal government, including (or perhaps, especially) the federal banking regulators, Billy Joel's "A Matter of Trust" is not the song that pops into their heads. Hall & Oates' "Maneater" is more likely.

Under TARP, the government can unilaterally alter the rules of the program retroactively, and many community banks simply do not trust the Federal government, under either the previous or the current administration, to regulate reasonably.

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