TARP recipients shoot themselves in the foot again

Banks that have received TARP money have already run into problems with Congress and the public. Most of these have been due to what has been viewed as excessive executive pay and perks. The way that the firms operate day-to-day has not been a big issue, at least so far.

The implied "contract" between the government and the banks is that some of the money that they receive will make it back into the market in terms of business and consumer loans. That has not always worked as banks keep much of the capital to improve their balance sheets. The concern with this practice is that it may help the banks, but it does not help the broader economy by loosening credit.

Banks, it now appears, are actually restricting credit by charging borrowers high fees. The committee overseeing the TARP activities is unhappy about that. According to The Wall Street Journal, "Last week, for example, Bank of America Corp. told some customers that interest rates on their credit cards will nearly double to about 14%." Citigroup (C) is promoting high interest rate loans.

It would appear that there is no end to the stupidity of bank management. It would seem easy enough for management to tell the operating units at their firms not do business in a way that would antagonize the Administration and Congress. But, that seems beyond the scope of their intelligence, and that will cause yet another round of bad PR and government meddling.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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