TightWind is written by Kyle Baxter. Stay Hungry. Stay Foolish.

Larry Summers:

“No major bank would be intact in a position to pay bonuses if that extraordinary support had not been provided,” Summers said. “The bankers need to realize that, they need to recognize that they’ve got obligations to the country after all that’s been done for them and there’s a lot more they can do.”

The bailouts, as ill-advised as they were, were not made to be used a tool to force private companies to do what the government wants them to do. They were made so the firms could survive, and become profitable again.

Let’s recap: banks made loans with little chance of turning a profit (at least in part because the federal government pushed them to make loans to lower-income, and thus riskier, borrowers), and when those loans went bad, were rescued by taxpayer dollars.

And now the government is pushing them to do the very same thing: make risky loans.

This is what happens when government is involved in the economy: it uses the club to force groups to do things that are politically helpful for the government, but economically ruinous.