March 6 (Bloomberg) -- Last week, when American taxpayers learned that a bank receiving Troubled Asset Relief Program funds had thrown a lavish bash and spared no expense to celebrate with the bands Chicago and Earth, Wind & Fire, I
introduced legislation based on a simple concept: if a company accepts bailout funds from the taxpayer, it can’t waste money on lavish parties, expensive dinners and Tiffany trinkets.
The reaction in some quarters suggests that I had attempted -- like a modern-day Dean Wormer in “Animal House” -- to ban fun of any kind, or that the wheels of commerce and marketing would grind to a halt.
Nothing could be further from the truth. Normal marketing and travel wouldn’t be affected one iota.
I believe we have to insist that tax dollars be spent wisely because, otherwise, Americans will refuse to rescue any business struggling in the most difficult economic times since the Great Depression. And believe me, Americans struggling to hold onto their homes and their jobs are already tired of picking up the newspaper and reading about idiotic abuses of taxpayer money.
During these difficult economic times, in which 3.6 million jobs have been lost in just over a year, I believe companies receiving taxpayer assistance should be focused on easing the credit crisis by increasing lending.
Frankly, I wish this legislation wasn’t necessary. But too many times, when we hear of these abuses of tax dollars, we get an explanation that the expenses in question weren’t specifically paid for by TARP dollars. As we all know, money is fungible. A TARP recipient can’t be allowed to fall back on the claim that a given expenditure didn’t involve TARP funds.
Removing Management
We should be focused on turning the economy around. We have to face the reality that huge swaths of our banking system are insolvent. We must recapitalize banks, not to help shareholders, but to rescue our economy. We need a clear, concise plan for aiding banks, large and small, that have liabilities that exceed their assets. That plan should include giving federal bank regulators the authority to remove current bank management.
As a condition for getting taxpayer assistance, banks should have their assets reflect current market values rather than inflated values. There will even be rare cases when no value can be ascertained, and those assets should be written down to zero.
A large, aggressive recapitalization of banks will be costly and unpopular. But we have no other choice. Congress will bite the bullet on this tough decision, but it’s a lot harder when Americans are reading stories about excessive spending by the very banks we’re here to save.
Not Party Time
Clearly, this is no time to party. Economic indicators are deeply troubling. Household debt-to-income levels are at historic highs, and estimates show that homes continue to be overvalued by as much as 30 percent. Many credit-card companies are facing insolvency. And commercial real-estate projects across the nation are quickly coming to their moment of crisis.
What does this have to do with lavish and frivolous spending by TARP recipients? Everything. If Americans continue to lose faith that their tax dollars are being used to rescue the economy, they’ll rebel -- at a time when more painful investments and sacrifices must be made to avoid a deeper and deeper recession.
Make no mistake: We need fewer concerts with big-name attractions and more of the hard work to get our economic house in order. This may just be one of those times when Congress needs to save the big corporations from themselves.
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