When the larger banks in the United States were receiving bailout funds from the federal government in October of 2008, many people wondered if we would ever see most of that money again. I was in the crowd who figured it was gone for good. Most of it will probably never be seen again, but news came yesterday that Citigroup and Wells Fargo have reached deals with the federal government to repay $20 and $25 billion, respectively.

With these two banks making their announcement yesterday, nine banks in total have negotiated deals with the Treasury Department to repay the bailout funds they have received. According to The Washington Post, Treasury Secretary Timothy Geithner has noted that 75% of the bailout funs have been repaid with a healthy profit. While all of this sounds well and good, there is a lot of speculation as to why the banks were so eager to repay the funds.

As I was listening to Morning Edition on NPR this morning, David Wessel of the Wall Street Journal was talking about just that. His idea is that these banks are wanting the federal government out of their back pocket because they do not like the restrictions that were placed on them, after they received the bailout funds. Namely, they do not like being told how they should structure their executive pay packages, including bonuses. That seems to be the prevailing theory among most analysts. While I agree that some of the bonuses we have all seen publicized have seemed to be very extravagant, I have always wondered if the federal government should assume the right or the power to tell these banks and/or companies who gets paid how much.

The host of Morning Edition, Renee Montagne, also asked Wessel another question about the banks. She wondered why the banks were not loaning more money, if they were doing well enough to pay back the funds. He had an interesting theory about that. I don’t have the text of the conversation, as it has not been posted online yet. The gist of it was that they are gaining a profit by trading between themselves, instead of providing credit to consumers.

Here I go again, digging into a topic that I do not fully understand, but how is the kind of trading David Wessel talking about going to help our economy? Were we not told that the brunt of the financial crisis came about because credit tightened up, that small businesses would not be able to meet their payrolls if it were not loosened up? If these banks do not provide credit to the consumers who need it and who have the means to pay it back, what good are they doing? Again, I am just asking the question here, trying to find the right answer.

What are your thoughts?

Tags: Citigroup, Credit, David Wessel, Executive Bonuses, Morning Edition, NPR, Renee Montagne, The Washington Post, Timothy Geithner, Wells Fargo

This entry was posted on Tuesday, December 15th, 2009 at 6:39 am and is filed under News/Politics. You can follow any responses to this entry through the RSS 2.0 feed.