Another document surfaced on Wednesday, which revealed that Hank Paulson, former Treasury secretary, forced the banks to take the TARP money. From the document, Paulson’s words were as follows:
“If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance.
“We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed.
“Government owning a stake in any private U.S. company is objectionable to most Americans — me included. Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”
The document was made public through the public interest group Judicial Watch under a Freedom of Information Act request.
The then Treasury secretary went to a meeting with some of the leaders of the biggest banks along with now Treasury Secretary Tim Geithner, FDIC Chair Sheila Bair and Fed Chairman Ben Bernanke. Three and a half hours after that, Paulson emerged with signed papers also carrying the amount to be taken by the banks.
This puts Paulson again on the spotlight. While it is understandable that banks were then (and until now) in need of capital, a couple of things maake this move objectionable. Last month already gave way to a controversial talk about Paulson’s insistence that Bank of America push through with its purchase of Merrill Lynch. Now this adds another to what some may perceive as the government crossing the line and perhaps even acting beyond their powers. Another is the use of (or the coercion of the use of) taxpayer money to fund the government’s bailout of the banks.
“Most Americans are going to be uncomfortable with the government forcing the banks into this arrangement,” said Tom Fitton, president of Judicial Watch, a nonprofit research group in Washington that obtained the documents under a Freedom of Information Act request.
He added: “These documents show our government exercising unrestrained power over the private sector.”