Academic

So the government urges you to take TARP funds, but little did you know this would give you a Scarlet "T" for the foreseeable future.  Now, TARP fund-receiving banks, even after repayment, are stil in the sights not only of federal regulators, but also of state regulators.  Federal regulators, who were given one chance to charge banks for the privilege of borrowing federal taxpayer dollars, now see banks with year-end profits and want another chance to charge not only for the privilege of using taxpayer dollars for awhile, but also for the harder-to-calculate costs that their risky business practices exacted on the U.S. economy.  This "ripple effect tax" (or fee, or clawback, or whatever) is very popular with the American people, who really hate to see these banks paying out bonuses from their profits when they are still downsized, laid-off and salary-frozen.  However, it's hard to come up with a great theoretical justification beyond "we need funds and they have funds but don't really deserve them"  If we're trying to correlate the ripple effect penalty with risky behavior, the worst actors probably aren't with us anymore, so punishing the survivors may be an inexact match.

But that's not going to stop either federal regulators or state.  NY attorney general Mario Cuomo "has requested  information from the nation's largest banks and Wall Street firms on their compensation and bonus plans for fiscal year 2009."  Although this seems to be a friendly request and not pursuant to an official investigation, Cuomo "feels he has the right" to request such information based on these banks' past behavior, the costs that behavior exacted on the NY and U.S. taxpayer, and his role as a law enforcement official.  I'm not sure what any of that means, but I'm pretty sure that we don't just knock on doors of former SBA loan borrowers and ask to see their financials after they've repaid their loans.  Cuomo says he has to make sure their isn't any fraud going on, but wouldn't he have to suspect some sort of fraud first?  I'll be interested to see how friendly these eight former TARP recipients are in responding to the request.

And because federal regulators hate to be showed up by New York attorney generals, the  WSJ reports that "[t]he Obama administration is considering levying a fee on banks to recoup more of the taxpayer funds spent to rescue the financial system."  A "fee."  I'll leave it to David Zaring or other admin wonks if this is true:  "It's not yet clear whether the move would require congressional approval. The original legislation creating the Troubled Asset Relief Program provided a way for the government to recoup its investments."  Didn't the government recoup its investments when the TARP money was repaid?