Dear Friends:
Every economic policymaker should be required to study Behavioral Psychology. Recent monetary and fiscal moves by the government of the United States in response to its severe domestic economic recession have lead many in the International Community to wonder if the folks at the Fed, the Treasury Department and the Oval Office missed one too many classes in either history or behavioral psychology. Perhaps both.
Please read the following, excerpted from the Washington Post, by way of BuzzFlash:
Bailout Overseer Says Banks Misused TARP Funds
www.washingtonpost.com/wp-dyn/content/article/2009/07/19/AR2...sent by etspoon since 17 hours 11 minutes, published about 4 hours 10 minutes
"Many of the banks that got federal aid to support increased lending have instead used some of the money to make investments, repay debts or buy other banks, according to a new report from the special inspector general overseeing the government's financial rescue program. The report, which will be published Monday, surveyed 360 banks that got money through the end of January and found that 110 had invested at least some of it, that 52 had repaid debts and that 15 had used funds to buy other banks."-- Binyamin Appelbaum, Washington Post Staff Writer
tags: banks, bailout, criminality
My comment in response:
There is a terribly large "blind spot" in government policymaking. It is in the area of intersection between economic fixes (bailouts, awards, "infusions," which latter term is my favorite) and behavioral psychology. If you drop a large sum of money in a profligate child's lap, especially after he has proven himself to be a naughty bully as well as a terribly greedy and short-sighted lout, he will see it as encouragement (my more articulate colleagues would call this "positive reinforcement"). If you then fail to attach very specific terms and conditions to the use of that sum -- like, by way of example, making loans to consumers and the businesses that employ them -- as well as the clear and enforceable threat of substantial punishment for noncompliance, you've given the profligate more than just a gift; you have given him a gift at the expense of every consumer, every business and every taxpayer in the entire economy. Every so often, one of the government's policy pundits has to repeat the silly exercise of trying to put out a fire by pouring gasoline on it. And, invariably, he is compelled to do it in someone else's house. --DC
Faithfully,
Douglas Castle
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