Bailout — Rent Seeking IS Sound Financial Management In This Environment
Regional bank BB&T, prevalent throughout the Southeast, is known for their opposition to government intervention in markets. After Kelo, they announced that they would not lend for private projects that made us of eminent domain. It is, then, sad to see them jumping into this:
Most of the banks say they want the capital so they can make more loans, though some could also have an eye on buying up other firms. BB&T’s CEO, John Allison, hinted at that possibility on Monday, when BB&T announced its $3.1 billion infusion.
“For us, the additional capital will not only extend and strengthen our lending capacity, but provide other strategic options as well,” said Allison, who is famous in the banking world for his opposition to government intervention.
When I still lived in Atlanta, I nearly made the jump to BB&T based solely on their response to Kelo. I moved away, but always had a soft spot in my heart for a bank that refused to participate in a moral wrong, even if it meant they were forgoing profit.
So I’m disappointed to see them jump into the bailout. At the same time, though, I can’t quite blame them. As the head of Citigroup said last year, “As long as the music is playing, you’ve got to get up and dance.” Washington is the conductor, and John Allison might well accept that when Washington plays a waltz, it doesn’t make much sense to dance a jig.
So what’s happened? Rent seeking is even more in vogue than usual, as the number of banks lining up to feed at the trough makes some investors worry about those who might choose not to gorge themselves:
Only days ago, many healthy banks were saying they didn’t need taxpayer money under the Troubled Asset Relief Program. These healthy banks said they worried that taking government investments could unfairly tar them as in need of a bailout. In the past week, that perception has been reversed, due in large part to efforts by Treasury, banking lobbyists and legal advisers to sell the TARP.
Now institutions across the U.S. worry that if they don’t try for the money, the market will judge them as too unhealthy to qualify, or lacking the savvy to deploy cheap government capital on acquisitions and investments.
“There’s a perception in the market that the government is actively picking winners and losers… we wanted it well-known in the market that we’re on the list of survivors,” said Roy Whitehead, chairman, president and CEO of Washington Federal Inc. in Seattle, one of about 20 regional banks approved by Treasury for the program last week.
When the music is playing, you might as well dance. In our sad state of corporatist rule, rent-seeking is preferred to responsible asset management.