Stimulate It

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We all know what will pull us out of this nose dive: $1 trillion in direct stimulus. Huzzah! What is less well advertised is what sort of strings will be attached.
When Paulson announced to several of the large banks that they were going to get bailout money and like it, a few had the temerity to ask what the conditions were. Of course, anyone who made such a comment was just opening themselves up to accusations that the developing (but not described) restrictions on executive pay were the motive for the rejection. That silenced about everyone. The institutions took the money. Some more grudgingly than others.
Fast forward. Surprise! Now anyone with public money is bathing in the gelatinous "squish" of a million squirming appetites, forced to submit to a literal morass of legislative tentacle sex with hundreds of pet projects, social theory experiments and personal causes (from the left and the right), not to mention the utter chaos and unpredictability of having every idiot in the House pop off about what new rule you should be following this week. Predicting what is or will be expected of you (or what you may or may not be paid) is a nightmarish prospect.
The typically good Falkenblog examines the consequences of these sorts of situations against big stimulus plans:

To see the problems, note that for the past 15 years, every bank merger would have to by approved by regulators, who were keen on making sure these banks were making adequate recompense for red-lining and other policies. Thus, consider this press release from when Washington Mutual acquired Dime bank in 2001:

In connection with its merger with Dime, Washington Mutual recently established a ten-year, $375 billion community commitment which targets funding to low- and moderate-income borrowers, and minority borrowers, as well as direct investments and other forms of support in communities where the company operates, including the greater metropolitan New York area. One of the largest community commitments of its kind, the ten-year pledge will be implemented with the assistance and support of a variety of non-profit community partners.

Now, WaMu hade [sic] about $250B in assets at this time. Pledging $375B for low-income borrowers staggers the imagination. If the entire banking sector was making these pledges, how, possibly, could one actually meet this objective without creating a huge system of favors, with vested interests at every level (government, business, nonprofit, regulatory, academic)? More importantly, how could it not end in a huge number of bad loans? That it took so long to implode is the most amazing thing. When it finally blew up, those responsible for the mess would say, like "it was perverse that Freddie Mac and Fannie Mae, the two biggest providers of money for U.S. home loans, have been encouraged to put people into homes that they end up losing." That was Richard Syron, who was head of the Boston Fed when it 'proved' that existing residential lending was discriminatory and too conservative back in 1992, and was rewarded as head of Fannie Mae, where he pocketed $38MM for running it into the ground.

Falkenblog goes on to wonder what perverse incentives $1 trillion in stimulus might leave our heirs with. Not a bad question considering we are well on the way back to lending requirements (all of them loose) for any TARP institution.
Will we never learn?
Big Government's Big Effects [Falkenblog]

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