Tim Geithner is making it clear he may not let the banks pay back their TARP funds. He’s going to consider general issues of “financial stability.” Wait a second. Where does he get the legal authorization to say “no”? I understand that it is a quaint notion these days to ask for the legislative authority for the government to boss around private firms. But if the banks send a check and thereafter refuse to abide by the government’s TARP edicts, what is the government going to do? I’m not sure a public fight or lawsuit against banks trying to get off the public dole is a public relations winner for Obama. It will, I think, strike most people as ludicrous.

If the public gets wind of the fact that the government, after pressuring a number of banks to accept TARP funds, now won’t let them out I suspect there may be some political and economic ramifications. On the political front, the public doesn’t like bailouts. Hates them in fact. So the Obama team in essence is going to return the check from the banks trying to pay back the taxpayers? This has the makings of a political debacle.

Moreover, the message is now being heard loud and clear by other businesses: run the other way when the government offers “help.” The Washington Post reports, “Top officials at Chrysler Financial turned away a $750 million government loan because executives didn’t want to abide by new federal limits on pay, sources familiar with the matter say.” (Unfortunately for Chrysler, it already accepted some funds and is under the government’s thumb.)

We are witnessing an unseemly and never-ending power play — the government firing CEOs, undoing contracts,  and making up regulations as they go along. It is a lesson for the public, Congressm and American industry: without the rule of law and clear boundaries between the government and private industry we have something akin to a banana republic. Mercurial leaders and ever changing groundrules make for poor government and economic chaos.