Hardly anything is more fungible than money. Keep that in mind when you hear expressions of outrage about banks’ inability or unwillingness to explain what they did with the money received through the Treasury and Federal Reserve’s frantic bailout of the U.S. financial system. Ponder it before formulating your own angry indictment.
Something is “fungible” if it is “freely exchangeable for or replaceable by another of like nature.”
Bushels of No. 2 yellow corn are fungible, as are gallons of 87 octane unleaded gasoline or 20-foot lengths of 1/2-inch reinforcing rods. But none are as fungible as dollars.
In other words, if you give many dollars to a business like a bank that has millions of dollars flowing in and out every day, it is difficult to determine exactly what happened to the ones you supplied.
A few anecdotes from my own life may illustrate things. When I graduated from high school in 1967, an uncle in Chicago sent me $20. That was a lot of money, equal to $132 today. I bought a large, name-brand 1/2-inch drive socket wrench set. Because it cost $22, I had to put in a little of my own, but I always thought of it as the socket set I got from my uncle.
In 1968, I was assigned to the U.S. military mission in Brazil. Because we were to keep a low profile, I was given $300 ($1,850 in 2008 dollars) to buy civilian clothes. I bought a few sets of jeans and shirts. But most went for a stereo, records and lots of books.
In recent years, an in-law always sends me $25 for my birthday. I just slip it in my billfold but try to note the next time we go out to eat so that I can reply, “Thanks so much for the birthday gift, we went out to eat at X restaurant and had a very nice time.”
In all three cases, I got fungible money that, in practical terms, I could spend on anything.
With the graduation present, I bought something I would not have bought if not for the gift. I consciously identified the wrenches as a present from that uncle.
In the second case, I made purchases I would not have made otherwise, but some were contrary to the specific purpose for which the money was given. (I did, however, have to dig into my own pockets to buy a suit and tie later that year when assigned to handle the baggage for Nelson Rockefeller’s presidential mission to Brazil.)
In the third case, it probably does not change my spending in any appreciable way. We don’t go out to eat any more or less than we would otherwise. But I do acknowledge a thoughtful gift.
The citizens of our country just gave tens of billions of dollars to our nation’s commercial banks. We want them to use it for the right things, accomplishing things that would not happen otherwise. And we want them to be grateful.
We don’t want public dollars to go for higher executive pay or for one bank to outbid a second one in buying a third. We do want the banks to make more loans to worthy households or companies that would not get credit if the Treasury had not opened its chute to let dollars flow into the capacious bins of the nation’s largest banks. We want them to foreclose on fewer homes.
Our desire that the money be spent the right way is understandable but probably not realistic. We didn’t provide the money because the banks were particularly deserving nor because they had been unjustly buffeted by events beyond their control.
Nor, in fact, did we limit these capital infusions to banks that were in dire financial straits. Using the same logic as those who argue all school lunches should be free to avoid embarrassing the poor who must ask for reduced-price meals, Secretary Paulson pressed funds on all the big banks to avoid singling out those in particularly dire financial straits.
We ponied up billions because we were afraid that if we did not, the financial system would collapse, throwing the economy into chaos and depression. In our haste, and perhaps in sober realism, we set few, if any, conditions on what the banks could do with the funds.
It seemed clear to me that I bought a wrench set only because my uncle gave me a graduation present. But banking is more complicated. In a time of financial upheaval like now, there is no way of knowing what loans a bank would have made, what expenditures it would have avoided, or who it would have foreclosed on if it had not gotten a Treasury transfusion.
But the banks are as politically tone-deaf as the auto execs who came to Congress in their executive jets and deemed their own compensation reasonable. The banks might be more public-relations savvy if they had had clear lists of what they had done differently because they received the money. I am not sure this would have changed their decisions one iota or even reflected any greater honesty. In a debacle like this one, expediency sweeps away accountability as well as gratitude.
© 2008 Edward Lotterman
Chanarambie Consulting, Inc.