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The Bailout Give & Take (and It's Only In America)

Two reports, two cases, same predicament

First, let’s discuss the banks. CNNMoney.com’s report on the plan of some banks to return their TARP funds to the government has startled the public. Most are wondering why these banks are taking the opposite reaction when a few weeks ago, Citigroup received additional bailout. The report states, “They’re especially concerned the limits on executive compensation – imposed in February, four months after Treasury starting sending out checks – could make it difficult to hold on to star talent who may jump to financial institutions that are not receiving any Government assistance. Iberiabank in Louisiana, California’s Bank of Marin, and TCF Financial in Minnesota confirm to CNN Money that they are asking Treasury to take back their TARP funds… Goldman, Bank of New York/Mellon, Wells Fargo, JP Morgan Chase and Bank of America – all ‘mega-banks’ that the government forced to take bailout money – say they want to return taxpayer funds “as soon as practical.”

There’s danger whichever decision prevails. Should these banks insist on returning their funds, it would paralyze their remaining capital before the end of the year. Well, it’s one reason why they were bailed out in the first place. On the other hand, if the Treasury accepts back their money (which is less likely to happen anyway), we’d be expecting initial adverse effects on the Dow Jones. It would pull down the market as investor confidence could drop heavily.

Then there’s the issue about governors finally accepting a part of the $7 billion federal stimulus funds after remaining adamant on using the money for state unemployment benefits. The reason? According to CNNMoney.com, “Some state officials, however, are concerned they will have to fund the expanded program by hiking taxes on employers once the federal money runs out. But they were soon hit by a backlash of anger from state lawmakers, unions and jobless residents.”

Here’s an Associated Press Report last month:

So we couldn’t blame the governors of Tennessee, Texas, Mississippi, Louisiana, Nevada and South Carolina for initially rejecting their share of the fund. On the part of the laid off workers, it’s a necessary tool to salvage them from financial distress. Benefits expansion can never be timely than this year when unemployment levels are hitting history-highs. But like it or not, the governors have a strong point too. Long term assurance that their unemployment programs will continue can hit the state even harder when their stimulus funds diminish since no one can safely prognosticate the end of the recession. But here’s a tip: if they’re fearful of fiscal policies that will hurt businesses eventually, why not think of another source to tap for funding? And yes, it wouldn’t hurt to limit the coverage on the unemployed to avert losing the money in a short span of time, right?

So here we have two issues facing the same dilemma – how on a recession-plagued landscape can banks and state governments possibly find the means to repay a huge amount that they’re “forced” to accept?

Tough times call for tougher measures.

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