The Corner

Surprise, Surprise

 Government not a reliable business partner, apparently (via the Washington Post) . . .

In its first two months, the government’s signature initiative to support consumer lending has fallen well short of expectations, deploying only a fraction of the amount officials had hoped to extend to stimulate auto loans, student loans and credit card lending. . . .

Sources involved in the program said private investors have been reluctant to work with the government, which they view as an unreliable business partner. Separately, the brokerage houses that are crucial intermediaries are being exceptionally cautious in the contracts they draw up with participants in the program, in part out of wariness that any mistakes could draw the ire of Congress or the media. . . .

In congressional testimony on Tuesday, Treasury Secretary Timothy F. Geithner said that overall progress is “pretty good” for a program in its early days. Still, he acknowledged that participation was “lower than expected” because of “concern about the conditions that come with the assistance in the program . . . and uncertainty about whether they may change in the future.”

There are restrictions on the business activities of participants in the program. For example, investors who control more than 25 percent of a fund that benefits from the loans face restrictions on their ability to hire immigrants using H-1B visas.

But perhaps more significant than any established limitation on the business practices of TALF participants is a fear that the government could retroactively change the terms, exacting new limits on what investors can pay their executives, for example, or trying to claw back profits that firms make in the program. The recent outcry over bonuses paid to executives at American International Group has heightened those fears.

“The government is viewed as being unpredictable,” said Warren Loui, a partner at the law firm Mayer Brown who has represented companies participating in TALF. “If the program is successful and the investor makes attractive returns, will the government want to come in and change the rules midstream?”

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