"Back in the US, Back in the US, Back in the US ... SR"

Does anybody still think we're not a socialist republic? Then read this:

http://biz.yahoo.com/ap/081028/financial_meltdown.html

This line is particularly chilling:

"Though there are limits on how much Washington can pressure banks, (Perino) noted that banks are regulated by the federal government.

'They will be watching very closely ...', she said."

I hear jackboots.

Bank regulators' job is not to tell banks what business decisions to make. Their job, as my boss back when I was among their ranks told me, is to shoot the wounded.

Some are drinking the administration's kool-aid, the flavor that says if the banks are getting taxpayer dollars, being told what to do with them is just one of the strings that rightfully should be attached to a handout.

Okay, let's try that logic on you, dear reader: let's assume you were one of the lucky recipients of a tax rebate check last summer. Let's further assume you wanted to save it for your kids' education, or pay down your credit card balance. Instead, some fed goon in Ray-Ban aviators shows up at your door, escorts you to a dark sedan with heavily tinted windows, drives you to the mall, and makes you spend every last dime on more crap you don't need.

How would you feel?

Attaching those strings up front to the bank deal might have been okay, except Paulson knew no bank would take the money if he dictated their business. Heck, just the way he doled it out was totalitarian.

In the UK (from whom Paulson stole the idea of nationalizing banks, or "injecting capital" as we like to call it on this side of the pond), they went to the nine largest banks and said, take it if you want it. Five did, and their stocks got hammered. The other four declined, and theirs only got slapped around a bit.

So Paulson figured our banks would be skittish about taking the aid. So he sits the nine largest US banks down in a private meeting and says, you're taking this money - period - but we'll "leak" that you were forced to, so investors won't think you actually needed the dough, even though we know some of you desperately do. Then other banks will see that your stock prices didn't tank after you got the capital infusion, and they'll belly up to the bar.

First they force banks to take capital they don't want (with some strings attached, by the way, like exec comp limits). The banks - who are only in this position in the first place because they got punch-drunk on bad loans - have sobered up and now don't want to make those loans, especially during a recession, when credit quality across the spectrum deteriorates. Instead, they want to insulate against the further write-downs that are sure to come, de-leverage their bloated balance sheets, and build capital - and also perhaps acquire some of the weak sisters. In short, return the industry to health.

Instead, Paulson's spiking the punch. And with everybody at the party honoring the AA pledge, he's hinting at using his jack-booted bouncers to - instead of doing their jobs and throwing out the unruly ones - force-feeding the booze to the crowd.

More bad loans are not the answer to this economy - quite the opposite. Paulson, Bush, et al don't get that though. They think we can consume our way out of any mess. Not this time.

The other troubling aspect to this is that it further reduces transparency at a time when we desperately need it in the markets. They're not saying who actually might need the capital among these first nine, and they're not revealing the ones that are approaching them, but getting rejected.

Why?

For fear their stock prices might fall once the news gets out that they're 1) short of capital and 2) so weak that even Uncle Sam won't take a flier on them.

In other words, the banks are hiding information from their shareholders and depositors about how weak they are - information those constituencies have a right to know. And the very regulators that are charged with preventing them from doing that are colluding with them in the effort.