O. C. Register: Follow the money

In an editorial yesterday, the Orange County Register lambasted the federal government for not attaching enough strings to TARP funding. The Treasury Department should have been required to track the money that has been given to banks to insure it has been used for the purposes Congress intended, the Register says.

But one dollar looks like another. Pour a bucket of water into a swimming pool and nothing changes that you can see, except the bucket gets emptied. The water in the pool all looks the same. Mix two containers of maple syrup and nothing changes except the quantity of maple syrup. You can't tell which syrup came from which container because all the syrup looks the same.

Money is like that. Dump borrowed money into a bank account that already contains money. Then pay some bills. Which bills were paid with the borrowed money? You can't tell.

So, you can't insist that money that is commingled with other money be used in a particular way. It isn't possible to determine how it was used.

The government can insist that certain things be accomplished, or avoided. For example, the government could require that firms receiving TARP funding not pay dividends. Or not attempt to raise money via a stock issue or by new borrowing. Or not acquire other companies. Or not pay large salaries to managers. All these are legitimate restrictions because they can be verified.

Perhaps the Register intended to suggest those kinds of restrictions. But that's not how the editorial read.