Ever since the results of the government’s stress tests were released, banks across the country have been rushing to escape from their TARP traps. Now comes more details on how they got snared to start with. Documents made public this week by the Treasury Department – pursuant to a Freedom of Information request by the advocacy group Judicial Watch provide a glimpse into the October 13, 2008 meeting at which then-Treasury Secretary Hank Paulson arm-twisted CEO’s of the nation’s nine largest banks into ceding hundreds of billions worth of equity in their enterprises to the U.S. government.
The fateful meeting appears from the documents like a James Bond movie performed by the Keystone Kops. The nine bank CEOs were called to the gathering without being told why. Once there, they were – as evidenced by ‘talking points’ used by Paulson – told in no uncertain terms that they would be selling stock to the feds. “We plan to announce the program tomorrow – and that your nine firms will be the initial participants.” In case anyone missed the subtle message, Paulson added “We don’t believe it is tenable to opt out, because doing so would leave you vulnerable and exposed.”
There was no mention of a trap door for anyone who declined, although it would have seemed fitting.
The hardball tactics, however, were accompanied by the rather slapdash and confused execution of the meeting. Even the documents handed out to the CEOs – by which they agreed to transfer billions in ownership rights to Washington, were almost comical – with CEOs asked to write out in long hand the name of their institution, and the amount they were transferring. It looked more like a deposit slip for $100, than an eleven-figure transaction.
This was a sorry day for the rule of law and economic freedom. And one more reason to allow banks to return their TARP money, and be done with it.
