John Kerry: Party days are over for bankers

Opinion

Last week, when American taxpayers learned that a bank receiving Troubled Asset Relief Programme funds had thrown a lavish bash and spared no expense to celebrate with the bands Chicago and Earth, Wind & Fire, I introduced legislation based on a simple concept: if a company accepts bailout funds from the taxpayer, it can't waste money on expensive parties and Tiffany trinkets.

The reaction in some quarters suggests that I had attempted - like a modern-day Dean Wormer in Animal House - to ban fun of any kind, or that the wheels of commerce and marketing would grind to a halt.

Nothing could be further from the truth. Normal marketing and travel wouldn't be affected one iota.

I believe we have to insist tax dollars be spent wisely because, otherwise, Americans will refuse to rescue any business struggling in the most difficult economic times since the Great Depression.

And believe me, Americans struggling to hold on to their homes and jobs are already tired of picking up the newspaper and reading about idiotic abuses of taxpayer money.

During these difficult economic times, in which 3.6 million jobs have been lost in just over a year, I believe companies receiving taxpayer assistance should be focused on easing the credit crisis by increasing lending.

Frankly, I wish this legislation wasn't necessary. But too many times, when we hear of these abuses of tax dollars, we get an explanation that the expenses in question weren't specifically paid for by Tarp dollars.

As we all know, money is fungible. A Tarp recipient can't be allowed to fall back on the claim that a given expense didn't involve Tarp funds.

We should be focused on turning the economy around. We have to face the reality that huge swathes of our banking system are insolvent. We must recapitalise banks, not to help shareholders, but to rescue our economy.

We need a clear, concise plan for aiding banks, large and small, that have liabilities that exceed their assets. That plan should include giving federal bank regulators the authority to remove current bank management.

As a condition for getting taxpayer assistance, banks should have their assets reflect current market values rather than inflated values.

There will even be rare cases when no value can be ascertained, and those assets should be written down to zero.

A large, aggressive recapitalisation of banks will be costly and unpopular. But we have no other choice.

Congress will bite the bullet on this tough decision, but it's a lot harder when Americans are reading stories about excessive spending by the very banks we're here to save.

Clearly, this is no time to party. Economic indicators are deeply troubling. Household debt-to-income levels are at historic highs. Many credit-card companies face insolvency.

Make no mistake: We need fewer concerts with big-name attractions and more of the hard work to get our economic house in order.

This may just be one of those times when Congress needs to save the big corporations from themselves.

* John Kerry, a US senator from Massachusetts, is a former Democrat presidential nominee and a senior member of the Senate Finance Committee.