TARP Watch: Local Bank Is on Timothy Geithner’s Radar

by Joe O’Malley Contrary to the free-market principle that businesses which make reckless decisions should fail, Chicago Democrats are now petitioning Treasury Secretary Timothy Geithner to bail out a local community bank. Its name is ShoreBank. According to the New York Times, ShoreBank made business decisions that were very poor: “An ill-timed, overly aggressive expansion at the...

by Joe O’Malley

Contrary to the free-market principle that businesses which make reckless decisions should fail, Chicago Democrats are now petitioning Treasury Secretary Timothy Geithner to bail out a local community bank. Its name is ShoreBank.

According to the New York Times, ShoreBank made business decisions that were very poor: “An ill-timed, overly aggressive expansion at the height of the credit bubble, a headlong push into risky markets on Chicago’s West Side and to the inner city of Detroit, and an unwillingness to foreclose on troubled loans combined to weaken the bank to the point that regulators last July ordered a major recapitalization.”

If this was a normal business, its assets would be sold off in a bankruptcy auction for their true value. Instead, these unimpressive assets have the potential to be purchased at overpriced values using TARP funds. This contradiction of one free-market principle confirms another—that free markets can allocate resources better than a central authority.

Illinoisans have seen the effects of supporting bad management which too often yields to political pressure, including an operating budget with a $5 billion deficit. In all likelihood, a TARP bailout will yield poor results as well.