The Washington Post warned readers in a front page article that the new government restrictions on banks that take bailout money is: "forcing them toward a disastrous choice between accepting restrictions on compensation that could cripple their ability to compete with rivals, or returning billions in federal aid, which could retard lending and damage the economy." Note that the restrictions supposedly damage the banks ability to compete, but there is no mention of the fact that not taking federal aid will also restrict their ability to compete. This one is pretty straightforward. If banks lack capital, then they can't make loans. Banks make money (i.e. compete) by making loans. When the banks take bailout funds, they are not performing a public service, they are getting access to capital at a lower cost than they would pay in the private sector. If banks have ample access to capital in the private sector, then there is no reason for the government to force them to take public money. On the other hand, if the banks don't have access to private capital, then they need the public money to compete. This obvious fact never appeared in this front page article.
--Dean Baker
