Anbody want to buy a bank for free?

The federal government decided Cleveland-based National City Bank was too fragile to warrant federal bailout money, so it gave National City’s share to Pittsburgh-based PNC, which used the money to buy National City. Tempers are flaring in Congress over the deal, as they will again if the government continues to pick the market’s winners and losers.

National City was the only one of the nation’s 25 largest banks that did not get bailout money. It has $100 billion in deposits and $150 billion in assets, according to this morning’s Cleveland Plain Dealer. PNC is paying $5.6 billion, and getting a $5 billion tax break to finance it – plus NCB’s share of the bailout cash. (The tax break is result of a Sept. 30 rule change by the Treasury.)

Anybody want to buy a bank for free?

The government is supposed to be like a referee -- but in the financial system bailout, the referees are throwing the game to the home team.

The truly crazy thing is, market forces would have resulted in someone buying National City without the federal government intervening. Talk of a buyout had been reported in the press since at least last spring, well before this fall’s financial storm.

On October 10 – after the financial meltdown, and after the bailout package was approved, but before PNC’s federal genie granted it three wishes -- the Plain Dealer reported that no fewer than five banks might be interested in purchasing National City.

And it’s not just National City. Four years ago, the then-chairman of National City predicted that half the nation’s largest 20 banks would be sold. We’ve been heading toward a period of consolidation in several industries, including banking. The financial meltdown just got us here more quickly.

America got rich because people believed in their own futures, and decided what risks to take, and not to take. Some individuals chose poorly – but an informed market with predictable rules is still the best way to allocate resources. Allowing Treasury employees and elected members of Congress to pick winners and losers is a sure path to unintended, and ugly, consequences.