With the announcement that the Obama administration is refusing to accept repayment of TARP funds and instead intends to convert those funds to an equity position, giving the government ownership stakes in the banks, socialism - and I am talking full blown socialism of the Hugo Chavez, Fidel Castro, name your favorite third world tin pot dictator variety - is now an actual risk in America.
The federal government, through market interference directed at social engineering, beginning with Clinton and protected at every turn by Democrats during the Bush Administration, gave us the subprime crisis. The fix we are in today never occurs without that, and that is irrespective of Wall St. What this crisis led to in October, 2008 was a massive credit crunch and liquidity problem. The government stepped in with TARP loans to provide government assistance, attaching a slew of strings to the money. At the time, the stated goal was to inject liquidity into the system with the onerous strings attached on such things as executive compensation in order to provide a motivation for banks to repay the funds as soon as possible.
The details of how the TARP money was used in each case is sketchy at best. Some was used as loans, some apparently to purchase preferred stock with no voting rights, etc. What was not done with the money, at least beyond AIG, was to buy a true ownership position in the banks that would have provided voting rights in the management of the company. The latter would be a major step towards nationalization of our financial industry. And indeed, that now seems to be what is on the cusp of happening.
Within the past week, we have seen some of the major banks publicly state that they wish to repay the TARP funds. The Obama government has said "no," we think you should keep the money - with all the strings attached - and perhaps we might take ownership of your company by forcing you to convert the loan to common stock. Read it here and here. In other words, not only would all of the onerous strings attached to TARP funds become permanent - to the detriment of our financial sector - but the U.S. government would effectively take ownership of our major banking institutuions.
That is really breathtaking - as is the fact that this is being reported off the front pages in our MSM. Under no circumsatances should the U.S. government be allowed a voting interest in our major banks nor should the TARP strings extend another day beyond an institutions stated desire and ability to repay those funds in full. Further, if the government wishes, they can easilly change how TARP funds are carried on the books of banks with a simple change to the regulations. The suggestion that only by converting loans to common stock can liquidity be increased is so transparent as to be laughable.
This gets worse and worse.