The perils of state-owned banks

The perils associated with nationalizing banks in the US are beginning to stack upon one another. Last month, we started seeing instances where banks’ and politicians’ interests began to diverge, such as with the introduction of cram-down mortgage legislation. When politicians own the banks, guess who wins that battle?

Now we are seeing “public policy groups” questioning whether banks that took TARP money should have participated in the acquisition financing for Pfizer Inc’s proposed merger with Wyeth. Or as The New York Times reported yesterday:

“The Greenlining Institute, a California-based public policy group, says it has filed an action with the antitrust division of the Department of Justice in which it questioned whether the bank consortium that provided the loans was misusing the billions of dollars they received under the government’s Troubled Asset Relief Program.

“The group claims that the $22.5 billion would have been better spent on extending loans to the millions of small-business owners that are struggling because they cannot get credit from banks.”

Those who rejected the idea of bank nationalization with various versions of the “slippery slope” argument suddenly don’t seem so shrill.