Here's the article that should send shivers down your spine.

The U.S. government�s decision to pledge billions of additional dollars with strings attached to Citigroup Inc. and Bank of America Corp. may be nationalization by another name, according to former bankers and regulators.

Faced with pressure from lawmakers, banks have shaken up management, eliminated executive bonuses and staff and canceled conventions. They�ll be forced to do monthly reports on how they�ve boosted lending while slashing quarterly dividends to one cent a share for three years.

�When the Treasury tells a bank to pay a penny a share vs. its old dividend, you know who�s calling the shots,� said Jon Bruss, a 40-year industry veteran and founder of Hartland, Wisconsin-based Fortress Partners Capital Management Ltd., which invests in banks. �It may not be de jure nationalization but I think it�s de facto nationalization.�

(Full disclosure: I hold stock in Citi.) You'd think, no, it really can't be that bad, can it? Isn't this an exaggeration? Thanks to a brand new blog tracking the Congress (written by Dave Dziok from Rep. Michele Bachmann's office -- h/t: Gary), we learn that it's not. The devil in legislation is in the details, and Dave's post shows us several votes on amendments. Consider:

Amendment #10, Hensarling (R-TX)�Strikes a provision in the underlying legislation that grants the Secretary authority to require a government observer to attend the meetings of the board of directors of any institution that has received TARP assistance. Loses 151-274. I wonder if Geithner will be reporting those government-paid frequent flier miles?

Amendment #62, Holt (D-NJ)�Requires that the Secretary, when making purchases with TARP funds, make purchases at the lowest price and maximizes the efficiency of the use of taxpayer resources. This motion was withdrawn; it was thought too cumbersome.

Amendment #2, Myrick (R-NC)�Prohibits institutions that have received TARP assistance from entering into agreements with a foreign companies to outsource customer service functions, including call-center services. So if you call your busted bank, you won't get Bangalorean accents.

Amendment #56, Hinchey (D-NY)�Directs the Secretary to require any institutions that received TARP assistance to inform the Secretary of the precise use of the funds. The Secretary would be required to conduct an analysis of the use of the funds and submit a report containing Treasury�s findings, conclusions, and any recommendations for further legislative or administrative action. This passed with all but one vote in favor.

Does this look like an arms-length regulation of the banking system, or does it insinuate government into banking to a very large degree? Mrs. Bachmann, whose own amendments were also defeated, voted no on TARP2, and we can hope now only for changes in the version the Senate passes. I'm not holding my breath, and I think our slow slide towards European banking (heavily regulated, few choices for consumers) is quickening.

UPDATE: Tyler Cowen, almost simultaneously:

You might claim: "they didn't nationalize it the right way" and maybe they didn't. Still, once you proceed down the nationalization path, you have to live with the nationalizations you will get, not the nationalizations as a professor might recommend they be done. The AIG transition was overseen by Bernanke and Geithner and of course Congress isn't nearly as smart or as well-informed as those two guys.

No, but with 92% more self-dealing!

Labels: banking, economics