The Obama administration has used TARP participation by banks and other financial and private-sector companies to demand control over their business practices, noting that their voluntary acceptance of taxpayer funds allows the administration stakeholder rights. But how voluntary was the decision by banks to take the money? A new report from CNS and Judicial Watch shows that then-Treasury Secretary Henry Paulson told these institutions that if they didn’t accept it voluntarily, the government would force them to take it, and that wasn’t Obama’s call:
Last October, then-Treasury Secretary Henry Paulson ordered nine banks that the Treasury Department described as “healthy” financial institutions to surrender ownership interests to the government or else face regulatory action that would force them to surrender ownership interests to the government, according to an internal Treasury Department document.
Paulson’s extraordinary threat culminated in one of the most sweeping government intrusions into the free-enterprise system in the history of the United States.
Judicial Watch, a nonpartisan watchdog organization, used the Freedom of Information Act to obtain a copy of the internal Treasury Department “talking points” that were prepared for Paulson to use at his Oct. 13, 2008 meeting with the chief executive officers (CEOs) of the nine banks. …
Did the banks have a choice? Not according to Paulson’s talking points.
“We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed,” Paulson told the bankers, according to his talking points. “If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance.”
We should point out that this action occurred under the authority of the Bush administration, if the timeline doesn’t make that obvious. The nine banks that got this Paulson ultimatum did not come to the government, hat in hand, seeking taxpayer money. Paulson told them that they would take the money, and that the Bush administration would have regulators impose that condition on them by essentially misrepresenting their relative financial health.
But why? In a precursor to the Obama administration’s own power grab, the Bush administration wanted to use the private sector to impose its own policies and pick its own winners. The Obama administration has merely picked up the tool left by Paulson.
These are the financial institutions that got the ultimatum:
- JP Morgan
- Wells Fargo
- Merrill Lynch
- Morgan Stanley
- Goldman Sachs
- Bank of New York
- Bank of America
- State Street Bank
Some of these wanted to opt out of the TARP program earlier this year, notably Wells Fargo, Goldman Sachs, and JP Morgan. The Obama administration has thus far rebuffed those efforts, claiming that they’re not healthy enough to pay back the money. If they weren’t sick enough to need it in the first place, why can’t they pay it back now? Simple: the Obama administration likes this tool, and doesn’t want to surrender its leverage until they’re finished overhauling the American economic system to their liking.
Update: Actually, although CNS reported this last night, my friend John Hinderaker actually had this three weeks ago for Power Line.