Bailout Resistance

From the news, you might think that all governments around the world are giving out as much money as possible and everyone they offer it to is gleefully taking it. You’d be wrong.

This week, even a bank decided to give back the money. Specifically, TCF Financial decided to undo the $361 million agreement that gave the federal government preferred stock in their company. A few even smaller banks have given some money back as well – and US Bank is working on it. Why? Here’s what the CEO of TCF Financial had to say:

We believe participation in TARP has created a competitive disadvantage for TCF and it is in the best interest of our shareholders to redeem these shares.

MarketWatch Article

Wait, free money is a competitive disadvantage? It turns out that the money came with a few more strings attached than previously advertised.  TCF also believed that possible stock dilution and the public perception of being a “failing bank” made it a lot easier to just give the bailout money back. No word yet on whether or not Citigroup is going to give any money back.

It turns out, TCF didn’t even want the TARP money in the first place, but that the government wanted to make sure that all the banks were getting money so that there wouldn’t be a stigma attached to those who did. Remember way back when Bernanke had to convince the banks to borrow from the “fed window” and had to keep chanting “there is no stigma” to get them to borrow? Long gone are those days – everyone now assumes the banks are in on a scheme and waits for proof to the contrary.

But it’s not just banks – governments are turning sour on bailouts too. Even socialist utopia Sweden decided that they wouldn’t bailout Saab. Why not? “The Swedish state and taxpayers will not own car plants.”  Well, there’s a refreshing sentiment. It seems we could learn a thing or two from our fellow travelers.

Here in the United States, we have an even stranger problem. For first time in memory, states are refusing to be manipulated by federal grant money. You see, long ago, in the mists of time, the United States were a group of sovereign states, and each state had its own citizens, while together they commited themselves to free trade between the states, a shared national defense, and a shared foreign policy.

Over time, the federal government has managed to increasingly tax the citizens of the states and consolidate power by turning around and giving the  money back to the state governments in exchange for implementing federal programs. This has worked out extremely well for the federal government, as they have been able to control the states while creating a strong national identity throughout most of the United States.

But what happens if the federal government goes a little too far or too fast? Signs were there last year, when Montana vowed to secede from the Union if the Supreme Court did not decide a case concerning gun rights favorably. The decision came down 5-4 in favor of individual gun rights – a close call.

Now, a few troublesome governors have dared to refuse money from the stimulus package. After all the years of the federal government extending its tentacles into state governments by bribing granting money to the states, it’s curious to see that some of the states are starting to realize that it isn’t always a good deal when it means changing how the states operate to comply with federal regulations.

Maybe all that free money isn’t as free as we thought.