Why Treasury Won't Take Our Money Back

Here's a story about the current issue of whether and how banks can pay back TARP money they received from the government, money which came was then larded with strings such as executive compensation attached. When Geithner talks about the being concerned with the health of the "entire" system, what is he talking about?

Here's the deal. While capital markets are beginning to thaw and many banks are beginning to make money again, there are some banks that are simply insolvent and close to failure. Geithner's reticence to accept OUR money back from the banks is born of a desire to prop up the nearly insolvent banks. The logic goes, if Treasury begins to accept TARP payments back from the banks now, it will set up the appearance of "healthy" vs. "sick" banks, and depositors in those "sick" banks (the ones not publicly trumpeting their repayment early) will swoop in and remove their money...tipping the balance and causing those banks to fail.

So I get what Geithner is trying to do. But what is wrong with allowing the "sick" banks to fail? I continue to be amazed at the extent to which "free" markets are criticized as the cause of all our problems, when their LACK of freedom was probably more to blame. Free markets? In free markets, banks don't lend money to people who probably won't pay it back. Our regulated and politically enlightened market forced them to, and in response, the financial industry chopped up and mitigated the risk to a level that resulted in no value at the end of the food chain--when the market bottomed, we had a financial crisis.

Keeping sick banks alive strikes me as yet another instance of government intrusion in the market. The creative destruction of recession sets the stage for future growth.