Remember how we were told that AIG just had to pay those bonuses, because contracts are sacred? Some of us had some questions, since union contracts didn’t seem to be so sacred, but then, these days, we are all supposed to join in the general disdain for unions. Why are those people always demanding pay and healthcare, anyway?
But now, there is shocking news that the very same folks that considered their executive compensation contracts to be sacred, don’t feel their own contracts with the government should be sacred:
President Obama emerged from a meeting with his senior economic advisers on Friday to say “what you’re starting to see is glimmers of hope across the economy.” But there were also signs of growing tensions between the White House and the nation’s banks over the next phase of the financial rescue.
Some of the healthier banks want to pay back their bailout loans to avoid executive pay and other restrictions that come with the money. But the banks are balking at the hefty premium they agreed to pay when they took the money.
…
Both large and small banks have pressed the Obama administration to make it less costly for them to exit the bailout program by waiving the right to exercise stock warrants the banks had to grant the government in exchange for the loans. At a meeting last month, the chiefs of three of the largest banks separately asked Mr. Obama to direct the Treasury not to exercise the warrants, Mr. Fine said.
Try suggesting to your bank or credit card company that it should waive any part of its contract with you, should you decide to prepay your loan early. See how much consideration you get. Yet here’s a bank executive feeling the shoes when he has to wear them:
Douglas Leech, the founder and chief executive of Centra Bank, a small West Virginia bank that participated in the capital assistance program but returned the money after the government imposed new conditions, said he complained strongly about the Treasury Department’s decision to demand repayment of the warrants. That effectively raised the interest rate he paid on a $15 million loan to an annual rate of about 60 percent, he said.
“What they did is wrong and fundamentally un-American,” he said. “Even though the government told us to take this money to increase our lending, the extra charge meant we had less money to lend. It was the equivalent of a penalty for early withdrawal.”
Don’t be fooled. These folks are saying they were pushed into taking this money, but they wouldn’t have taken it if they didn’t need it, or think they could turn it to their advantage. Now they want the government to give up its contractual rights, because they would rather risk going under than abide by the modest restrictions the government has imposed.
We might be able to muster up a bit of sympathy for these folks, if they were getting out of the program because they truly were in great financial shape. But this is, in the main, about preserving their own rights to rape their stockholders, whether or not they sink the listing ships that they command. This is all about trying to restore the status quo ante, a consummation we should all want to avoid.
Then again, we may have to thank the bankers for doing what folks like Paul Krugman could not do: convince the Treasury that it has to crack down on the banks. It may finally dawn on them that restoring they have to make a choice between placating these greedheads and saving the economy.
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