Why is Tim Geithner acting like Tony Soprano?

Now that spring has returned to the credit markets, and M&A bankers are again engaging in corporate mating rituals, we may be entering the next season of the Great Bank Meltdown: returning the federal bailout money.
While the credit crisis isn’t completely behind us, conditions are improving. This has led a number of Wall Street giants to consider asking the feds to get out of their kitchen so that bankers can return to cooking up deals.
Hold on a minute, says Washington.
At a Senate Banking Committee hearing yesterday, Treasury Secretary Timothy Geithner effectively told the bankers, “Not so fast.”
Mr. Geithner may have several reasons for wanting the government to continue its financial involvement with banks.
The principal one — concern for the safety of the financial system — is entirely appropriate. It’s even touching, if you look at the Fed as a generous host, showing concern about a visitor’s health.
But something’s a bit off. The government’s involvement in banking is vaguely reminiscent of the way Tony Soprano handled business.
For example, when asked if the Treasury would reduce its involvement as banks repaid their loans, Mr. Geithner responded that the Treasury would still have the ability to recycle money into new loans to other institutions if it saw fit, according to the New York Times.
He also warned the committee that he would not discuss an exit strategy for the government’s $700 billion + intervention in major companies.
So let me get this straight.
You’re a troubled bank. The government walks in and demands that you take their money (even in cases where you don’t want it), and then balks and shows off its muscle when you have the temerity to say you want to end the arrangement. Hmm. Remind you of anyone?
There are, of course, lots of ways to look at the government’s reluctance to take back the money. One possibility is that it has used the crisis as an opportunity to intervene in banking permanently. Maybe it wants to reshape banking in ways it hasn’t yet articulated.
Another possibility, as pointed out in a column today on MarketWatch by David Callaway, is that banks are playing a big game of bluff.
It’s in their best interest to pay back the TARP money as quickly as possible, and buy out the government’s warrants as early and with as little cost as possible, Mr. Callaway says.
As bank shares rise, the warrants — which the government received when it handed out the bailout money — become more valuable, making the rescue a potentially big moneymaker for the government.
“All of this comes against a backdrop of the much larger issue of allowing the banks to pay back their TARP money in the first place, and effectively escape from the more heinous regulatory plans the government is devising for rescued franchises,” Mr. Callaway wrote.
Who knows what Mr. Geithner and the administration really have in mind. But as he told senators Wednesday, they’re going ahead with plans to team up with private investors and buy billions of dollars of toxic bank assets.
So now the government is getting into the toxic waste business. Paulie Walnuts, are you listening?

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