While working in the Ukrainian central bank in 1996, I was witness to several practices that I took to be vestiges of the old communist order. Old habits die hard, they say. One was a bizarre ruling from the prime minister that directed the central bank to count any loan made to a coal mining company as if it was bank reserves. A bank's reserves cannot be lent out, and it can be viewed as a tax on bank activity. It was quite clearly directed lending from the government to a favored state enterprise (there were and still are relatively few private mines) and to its workers, who constituted a major portion of the prime minister's political base.

I thought this open favoritism couldn't happen here. But:

• Chrysler's four banks are being asked to take much less than expected on their Chrysler debt. Stuart Varney warned a few weeks back, "If Rick Wagoner can be fired and compact cars can be mandated, why can't a bank with a vault full of TARP money be told where to lend?" Well, who are the four banks? JPMorgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc., Morgan Stanley, and a bunch of investment funds. All four banks are on the list of TARP recipients.
• A bill in the Minnesota House blacklists a company for unfair labor practices "past and present" even though the federal agency charged with making the determination has not found any violations. Its crime? Handing its employees information about unionization that doesn't favor unions. In effect, the bill requires the company to relinquish its First Amendment right to free speech on its own premises in order to sell goods to government.
  

James Kwak wonders why banks receiving money from government should be allowed to have any say in relief efforts. But government purchases goods and services from everywhere, as the second story shows. If doing business with government means succumbing to Leviathan's heel, is there any effective limit on government power? Or is that limit reserved for our handling of terrorists and pirates?

Labels: economics