No TARP Money? You Should Be Thrilled

At last count, 315 different financial institutions had received over $300 billion in TARP money. If you’re one of the thousands of other financial institutions that didn’t get a slice of bailout pie, you should be grateful.

Why? Because when you take money from taxpayers, you can expect a whole new level of scrutiny from the general public. Bailout banks may not be held accountable by the government, but nothing can stop the court of public opinion from rendering its opinions.

Take this example. After Webster Bank announced it was opening a new flagship branch, the Bristol Press ran a stern opinion piece questioning the why the bank received $400 million from the U.S. Treasury’s Capital Purchase Program. Why should the government be giving Webster money to build branches, the article asks, especially when the bank’s executives said they didn’t even need money for a bailout?

Reality Check: Banks getting bailout bucks better brace themselves. By not saying what they’re doing with their TARP injections, the public can only speculate… and people have wild imaginations. People will look at any expenditure — even new branches that could benefit them — as a waste of taxpayer money… their money.

And if one new branch is all it takes to get folks riled up, how do you think they’ll react when they hear that U.S. Bank, relatively healthy by today’s standards, just signed a sponsorship deal for the Minnesota Twins new ballpark? You can hear it now: “We gave them $6.6 billion dollars and they go sponsor a baseball team???” It doesn’t matter if this deal had been in the works for the last few years. People don’t care.

Bottom Line: In 2009, a bailout bank won’t be able to spend a penny without someone chucking around accusations of waste, frivolity and lack of accountability.

UPDATE (This item came in just moments after this article was published): Someone studied the investor teleconferences of a couple dozen banks who got TARP injections. What are they doing with it? Most banks see the bailout program as a no-strings-attached windfall that could be used for anything they feel like, so they are using it for two things: (1) as insurance against a prolonged recession, and (2) mergers.

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