With less lending now by TARP recipients since getting taxpayer money, the Obama economic team is letting it be known that a slow-motion takeover of banks is in the works.
"In a significant shift," the New York Times reports, "White House and Treasury Department officials now say they can stretch what is left of the $700 billion financial bailout fund further than they had expected a few months ago, simply by converting the government’s existing loans to the nation’s 19 biggest banks into common stock.
"Converting those loans to common shares would turn the federal aid into available capital for a bank--and give the government a large ownership stake in return."
Such temporary, partial nationalization is what some critics have been calling for since the credit crisis started last fall and, now that results of the stress tests, still undisclosed, apparently reveal little improvement in a shaky situation, the Administration is sending up trial balloons for doing just that under the cover of euphemisms.
Doing so by converting to equity positions with representation on bank boards would avoid use of the dreaded N word and steer clear of having to obtain Congressional approval.
As some of the largest banks announce profits and vow to return bailout money, they seem to be playing high-stakes Chicken with the President's economic advisers to encourage the stock markets and investors, but if and when the government takes seats on their boards, the game will become real and messy.
Everyone involved should be hoping that, before that happens, the free markets miraculously recover and start working again.