Well, a major melee is shaping up. As detailed in the WSJ article quoted below, the Congressional Oversight Panel, in charge of overseeing the federal bail out, is preparing a report about possibly inappropriate lending by banks that received TARP funds.
This is shaping up to be a mess of the first order. We are in the middle of a recession and a credit crunch. Due to a wide variety of economic forces, this leads interest rates to become higher. This appears to be, and in some sense is, unfair--- according to many consumers. So Congress is riding in to the rescue.
This is exactly the sort of mess that was predicted when this bank bailout occurred. The problem is, many business practices are unfair, life itself is unfair, capitalism is unfair. Unfortunately, experience indicates that the major alternative, government control, ends up being much worse.
At any rate, this seems to be what we are headed for.
One of the examples of unfairness cited below is loans by Citigroup. I invite readers to consider what this really means. Citigroup, as the quote below mentions, has received $50 billion from the government. However, this is really chicken feed. The real federal commitment to Citigroup is their guarantee of the questionable paper held by the bank. The amount of paper guaranteed is $300 billion. That's close to half the total TARP money and close to half of the entire stimulus bill.
In reality, asking whether something Citigroup does is appropriate no longer has any meaning. It is like asking whether something Frankenstein did was appropriate. Frankenstein was a bunch of dead parts--- brought to life by a mad scientist. Citigroup is a completely bankrupt institution---brought to life by a government that seems to have lost its connection to economic reality completely at some point in the Bush administration--- and has kept almost exactly the same economic policies going under Obama. What is Citigroup? A business? A government financed philanthropy? Who knows?
The absurd thing is, the recent bear market rally was led---you guessed it---by unanticipatedly high profits from Citigroup. What, exactly, does it mean to make profits after the government gives you $50 billion and guarantees $300 billion of your bad paper. I'm guessing it means anything your accountants want it to mean.
Monday, April 13 Wall Street Journal, front page
Last week, for example, Bank of America Corp. told some customers that interest rates on their credit cards will nearly double to about 14%. The Charlotte, N.C., bank, which got $45 billion in capital from the U.S. government, also is imposing fees of least $10 on a wide range of credit-card transactions.
[Mounting Fees]
Citigroup Inc., another recipient of government cash, is trying to entice customers to borrow at high rates. "You could get $5,000 today," Citigroup's consumer-finance unit wrote in fliers mailed to customers. The ads don't disclose that the loans often carry annual interest rates of 30%.
Banks say that raising fees and rates, even on low-risk customers, is a legitimate way to recoup some of the costs of the bad loans still on their books. They also say taxpayers have a financial interest in seeing the industry quickly return to profitability. Any revolt over price hikes could intensify the crisis by depriving institutions of a key income source, say banks. New restrictions on these lending practices "may truly have an impact on profitability," said Gerard Cassidy, a bank analyst with RBC Capital Markets.
The controversy underscores the quandaries of Washington's dual role as owner and overseer of U.S. banks. While shoring up the banking system is a goal of federal regulators and the White House, what is good for the bottom line of banks isn't necessarily good for their customers