Will Congress prove Plato right on mob rule?

Somehow it seems unseemly for Congress and the President to be fostering a lynch mob atmosphere. But when it comes to AIG there are no holds barred. A prominent NY Senator has demanded the names of bonus recipients be given him, with the implied threat of making them public. This despite death threats sent to AIG. In a civilized society, when you have a dispute with your neighbor, be it your property line or a stereo being played too loud, you don’t try to resolve it with a baseball bat. You take it to a judge. That’s the mark of a civilized society. But Congress and the administration have decided the pitchfork armed mob is a better solution. They are screaming for blood. And the press and network news aren’t far behind.

Plato in his Republic said democracy would fail because it would lead to mob rule. He preferred the Philosopher King approach, a rather self serving conclusion for someone who was a philosopher. Yet the current administration and Congress appear to be trying to prove Plato right. The problem is Congress, at the insistence of the administration, hastily passed a Stimulus package without hearings allowing the very bonuses they now seek to reverse. A judge would laugh them out of court if they challenged their own legislation. The excuse “We didn’t have time to read the bill we approved,” would have him rolling on the floor laughing. So forget the civilized way of resolving conflict. Solution: demonize AIG and try to pass confiscatory tax legislation to recoup the very bonuses they approved. Demagoguery is alive and well in Washington.

The banks that accepted TARP funds are now finding there are strings attached that weren’t there when they accepted them. And some accepted them only at the insistence of then Treasury Secretary Henry Paulson to put all banks in the same category to protect the identity of “bad banks,” to prevent runs on them. But now the new administration is putting on onerous rules such as slashing dividends, putting off evictions, modifying terms of mortgages (at the bank’s expense), canceling sales meetings and travel, and dropping job offers to foreign citizens. According to the NY Times at least three, TCF Financial, Goldman Sachs and Wells Fargo are planning to repay the loans quickly to escape these burdensome restrictions. Others won’t be far behind.

As Congress and the administration have discovered, hasty legislation and ill conceived regulations have unintended consequences. Here’s what’s down the road if they stay on the same course. 1. The “good” banks will hoard cash to pay off the offensive, restrictive and costly TARP loans. That will inhibit the very thing the TARP legislation was designed to do, free up money to make loans. 2. The very institutions that played ball with Bernacke and Paulson and got burned, will be reluctant to accept any more TARP funds to take over other problem institutions. The Fed and Treasury need their cooperation. They won’t get it with their current attitude.

It’s time for the players on the government side to get serious about our financial crisis. Demonizing the financial community or leading mobs on rampages accomplishes nothing. They need to prove Plato wrong.