BofA, WTF

It looks like another bank consolidation will be using federal juice to get the deal done. The WSJ reports today that Bank of America will be tapping the TARP to complete it's acquisition of investment house Merrill Lynch. Think of it as affirmative action for creative destruction. Not exactly what Joseph Schumpeter had in mind when he was developing the concept of corporate evolution through the natural uninhibited cycles of free market ebb and flow. The TARP, pitched as the only means to keep the credit markets from freezing up for good, has become the grease lubricating a new round of bank consolidations.

There are no letters in the acronym TARP that describe the unexpected outcome of the federal bailout to banks. Citi has benefited greatly from the largess and PNC used the TARP to buy our beloved NatCity. Compare and contrast these events with the struggle to get a loan package approved for the U.S. automakers. Paulson et al insisted the remaining TARP funds were committed for an undisclosed use and would not be available to loan to the automakers. Now that the story is out is appears to this observer of recent history that the BofA Merrill deal was given priority over the Big Three loan. That puny $17.4 billion loan package begrudgingly handed over to the Big Three was dwarfed in by the crazy billions being thrown at BofA and Citi alone.

This latest episode is one more example of the Treasury Department's tilt towards helping Hank's comrades in the financial sector. As an example take a look at this piece from The Big Picture comparing the terms the Treasury gave to Goldman in comparison to what super-investor Warren Buffet was able to demand for a stake in the firm. Clearly the Treasury program was designed to provide money without much in return from the banks.

A massive reorganization of the big players in banking was always in cards when you consider the people involved, I guess it shouldn't be a surprise. Congress, taxpayers and the losers who got the short end of the deals (Nat City) shouldn't be surprised at the outcome of TARP I. The next chapter, TARPII will be getting under way soon. Maybe the next round will have more accountability and less emphasis on creative destruction.

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