Having regained a financial footing as well as a bit of their old swagger, major banks are racing to pay back billions of taxpayer dollars ... Now that big banks seem to have stabilized, regulators are trying to determine how and when these institutions should be allowed to return their bailout money.That's great thing, right? Not exactly, says Ezra Klein:
The banks, he writes, are something like a gambler who knows dark secrets about the casino owner's wife. So if he runs out of chips, he'll just throw a glance at the owner and receive another stack. In other words, he has no incentive to play safe (or smart!) because, when "The House" needs you to be happy, a game of risk suddenly isn't a risky game at all.
The banks are the gambler because the government has no "credible process for allowing and managing a bank's failure." So why not pay back the TARP as soon as you can, cut the strings that hold you down and get Geithner off your neck? It's also a street cred thing, writes TNR's Noam Scheiber. It's a race to be seen as the first healthy bank to seize the comparative advantage in the market.
I think this interpretation makes a lot of sense, but this other side of the coin deserves a look. Bank of America has found it surprisingly easy to begin to raise the $34 billion dollars required by the stress tests, and public confidence in the banking system post-tests is up for the first time all year. The downside of bending over backward for the banks is all too evident: it's been ungodly expensive and the banks could be more difficult to re-regulate after this mess is over. But we've avoided a Lehman-esque castastrophe without electro-shocking public opinion with premanture nationalization rumors, while keeping investors eager to capitalize the most troubled institutions. Not ideal, no. But not bad for a game of messy incrementalism.
Ezra Klein's point is silly. The people making the decisions at these banks have *everything* to lose. If Ken Lewis screws this up and wrecks Bank of America and has to go back to the government for another bailout he's sure to lose his job, his salary and his reputation. Pandit, Blankfein, Dimon, Mack, Stumpf, none of them want to be known as people who wrecked one of America's great banks. They all watched that hearing where AIG's Edward Liddy read the letter about how people want to murder AIG Financial Product employees *and their families* with piano wire. They all know that Dick Fuld got punched in the face in the Lehman gym. Ezra Klein has no idea what bankers mean when they talk about risk. But if we're just using the term in the general sense, let's talk about risk of getting-punched-in-the-face-by-your-employees and death-by-piano-wire.
Look, Ezra Klein, is a liberal opinion blogger and that's great and there's a place for that, but he *knows nothing whatsoever about banking*. Spare us.