More TARP Beggars

A couple new supplicants turned up today at the TARP window.

Hartford Financial Services announced it is buying a thrift holding company, Federal Trust Corp, of Florida for $10 million in order to turn itself into a bank. As such it will then be eligible for a capital injection from the TARP slush fund. If you follow this, you can see that Hartford is going to part with $10 million and then have the government inject something on the order of $10 billion plus into the new entity. So all you have to do to become systemically important is evidently to buy a bank, no matter how puny, and then you can’t be allowed to fail. Do you see the possibilities here for me and you?

If that leaves you breathless consider this. The mayors of Philadelphia, Atlanta and Phoenix sent a letter to the Treasury ask that a $50 billion portion of the TARP authorization be set aside to help cities. They suggest that the funds be used to cover infrastructure projects, fund short-term cash needs and help cover unfunded pension liabilities.

I happen to live in one of those cities, Phoenix to be specific, and I can assure you that the situation is dire. Sales tax receipts are cliff diving and an unimaginable $100 million budget shortfall that was projected in the middle of the summer has turned into a projected $250 million shortfall. I’d bet my last penny that’s too small. The cuts that are going to have to be made and the sacrifices that the citizens will be called upon to bear are going to be draconian.

I will expand on this theme over the weekend. Cities, counties and states are going to slam into a wall that will devastate them. For the moment let me just observe that we are starting to get into an area that is fraught with two major problems. One, the Treasury of the United States might not have the wherewithal to bail out local governments without serious long term harm to the national economy. Two, the political friction that this will engender could be monumental as those areas of the country that have been fiscally responsible are asked to come to the aid of the spendthrifts. The restrictions that are likely to be attached to any bailout funds will likely be politically unpalatable.

Tom Lindmark

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