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john e. sununu

Enough with bank bailouts

Although November returned a divided Congress and exposed a divided country, Americans still agree on one thing: Even during this season of giving, we hate the bailouts. Treasury officials seem to get that, so during the past several months they’ve quietly sold off most of their remaining shares in small banks. The sale of these securities — remnants of $205 billion in TARP investments — will result in modest losses.

While the overall bank capital program will still turn a profit, this is the kind of story the government hopes will be buried deep in the business pages. Even “good” news like selling the government’s last shares in insurance giant AIG — and recouping the entire amount taxpayers put up — prompts a certain amount of public hand-wringing. Four years after the biggest of the bailouts, federal policy makers are still stewing over the choices they made four years ago — and struggling to put supposedly “temporary” measures of 2008 behind them.

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True to form, Congress is now debating an extension of one of the “emergency” responses to the crisis, a program that guarantees some business bank deposits. Although taxpayers would be on the hook in the event of widespread failures, opposition has been muted by the fact that as bailouts go, this one appears pretty small. Compounding lawmakers’ ambivalence, determining who is getting bailed out can be difficult. Is it the banks, big business, the fat cats, or the workers?

The Transaction Account Guarantee Program sounds innocuous enough. Created in 2008 to help stabilize the banking system, this backstop has already been extended once back in 2010. The “guarantee” applies to certain business accounts that are typically used to handle short-term needs like payroll or processing bills. If the bank goes belly up, an insurance pool managed by the government protects the funds. If the pool runs out, you get to pay.

Most taxpayers would be suspicious of a “temporary” guarantee that’s now entering its fifth year. That kind of tenacity only buttresses Ronald Reagan’s famous adage that no federal program ever dies. Not surprisingly, interest groups have thrown their weight into the effort — on every side.

In fact, some of America’s biggest financial institutions, represented by the Financial Services Roundtable, have weighed in against a proposal to extend the program yet again. They argue that the guarantee, effectively a subsidy, is no longer required.

On the other side, smaller banks want the policy to stay in place. With a federally sponsored insurance program, they found that some businesses are much more willing to keep big accounts in banks that historically have been less secure — and more prone to failure. That business just might go somewhere else if the playing field were leveled. Yet the small guys, represented by the Independent Community Bankers Association, argue that the guarantee simply compensates for the “un-level” playing field created by the Dodd-Frank banking regulations, which, they say, created a blanket guarantee for the biggest of the big banks.

And in an unusual twist, the Credit Unions Association has sided with behemoths like Citi and JP Morgan. They want to — you guessed it — “level the playing field” with the community banks.

Ironically, the businesses holding the guaranteed accounts have been relatively quiet. Sometimes the smart move is to quit while you’re ahead.

With last week’s sale of $7.6 billion in AIG stock, that’s exactly what the government did. Rescuing the insurance giant in 2008 put $180 billion in taxpayer funds at risk, much of it even before the Troubled Asset Relief Program was approved. For nearly three years, Richard Benmoche, the company’s CEO, has worked overtime to give the money back and deserves enormous credit for getting Uncle Sam out whole. Sure, he’s been paid for the effort, but over the course of his tenure he’s been more likely to be called before Congress for a lecture than publicly thanked for his service.

The risk is that future Congresses will judge these bailouts — TARP, AIG, General Motors, or even the Transaction Account Guarantee Program — on the basis of whether they returned money to the Treasury. That’s the wrong yardstick. Instead, the question should be whether the program was essential to avoiding unacceptable economic consequences.

By letting the Transaction Account Guarantee Program expire, Congress can close the book on a chapter of the financial crisis that may or may not have been unavoidable — but now is best left behind. Let someone else play Santa Claus next year.

John E. Sununu, a former Republican senator from New Hampshire, writes regularly for the Globe.
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