Invest in Freedom
If you’re like most rational economists and lay people, you believe that economic freedom equates to economic growth. And if you agree with most investors, economic growth is a good indication of a high potential for return on investment. The conclusion is that investment in freedom will net the largest return on investment.
A great example of this technique is an investment history of banks. When the Trouble Asset Relief Program (TARP) was signed into law by the socialist light President Bush on October 3, 2008, a number of banks refused to take the cheap government loans with all the strings that were attached. The first thing that comes to mind when considering why some firms refused TARP is that they weren’t exposed to the trouble assets that caused the problems, thus, they had no need for the loans. But the Treasury Department was encouraging all banks to take the money so that they could mask the true weak spots in the industry. If all banks took the TARP money, it would be difficult for investors to spot the weak links in the chain and avoid doing business with them, which would increase the risk in their failure. On top of the uniformity pressure, the government money was really hard to pass up as a business decision. After all, what company wouldn’t love to dump all of their bad decisions onto the taxpayer in exchange for some worthless stock?
Well, some banks did pass up that great deal by Congress and the Treasury Department. Instead, they pushed through the market crash and recession without taxpayer assistance. Commerce Bancshares (CBSH), BOK Financial (BOKF), and NY Community Bancorp (NYB) are just some of the major banks that said no to Hank Paulson and his TARP cash. And these banks aren’t fly-by-night operations, they rank among the top 50 financial institutions in the country by assets.
Well, you might say that it was great and all that some banks stood up for what was right, but how did those companies fare compared to banks that got a fresh start with TARP? Since TARP went into law, Bank of America and Citibank have been crushed by the market. Their stocks are down 67 and 79 percent respectively. SunTrust Bank and U.S. Bancorp fared a little better at -50 and -32 percent respectively. Only JP Morgan and Company is close to where they were when TARP was passed (just down 18 percent). Each of the non-TARP banks mentioned above have done better than all of the TARP banks. Commerce Bancshares stock is only down 14 percent since October 3, 2008, NY Community Bancorp is only down a single percent, and BOK Financial is up 2 percentage points. So, it turns out that keeping your principles when it comes to financial transactions and investments just may pay off.
Of course, the larger TARP banks offer some benefits that the smaller, non-TARP banks do not—ATMs in every major city and nice, shiny websites with gratuitous password protection features, for example. But if you can suffice your basic business or personal financial needs with a principled bank, the long-term benefits to you and the society in which you live could be worth it. We will maintain a webpage at this book’s companion site as a resource for customers looking for principled banks in their neighborhood at: http://www.code-interactive.com/ad-in/un-TARP.htm