The dirty little secret about the bailout
The banks are NOT going to use it for lending. They are going to use it to buy the competition. Disgusting, greedy, morally bankrupt, thieving, manipulative, dirty, rotten, scumsucking fucks.
Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”
Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. On the contrary: at another point in the conference call, the same executive (who I’m not naming because he didn’t know I would be listening in) explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.
It’s a little crazy right now. The banks got too big to fail so we’re letting them get bigger? We are going to end up nationalizing the banks. If the problem is that banks won’t lend won’t the government have to take over that function at least temporarily?
Exactly why did anybody think the government handing money over to banks who had already proven they didn’t know what the hell they were doing would make anything better?
Tyler Nixon asked several weeks ago if the real reason was to make credit easier, why didn’t the Fed just start making loans to private citizens.
tyler nixon’s hero is Newt Gingrich….
Which makes his idea wrong precisely why?
Commercial paper counts for 80+% of the loan business, so I am not sure what loans to a largely overleveraged citizenry would actually accomplish.
If they were going to inject all of that money into banks, then the US should have taken a management position (seats on the board) the way the Brits did in order to have direct input into these decisions — specifically to get these banks back on a track where there is some confidence in markets to ease the lending issues.
cassandra
Just for sake of argument, where were we going to find those people to take all those seats–given that it was at least some measure of incompetence at the Fed and Treasury that got us into this mess in the first place? We’re talking dozens of government reps on bank boards, if not hundreds.
The number of people to come up with is likely in the dozens, and the problem with getting decision-makers in the Bush administration is that they all have to pass an ideological test, rather than a competence one. So that is a fair question, and if you read the entire article, it has been looking like the Treasury has wanted to force more mergers with these injections anyway. Which mostly looks like trying to heal an industry while letting a nation that depends on the commercial paper business to its own devices.
The Brits, on the other hand, are sitting on the boards forcing funds to lending facilities. They are counting on getting back to the lending business as a way of lessening the pain for the many.
I know no matter what you will rail against the move to stabilize the banks but here is a much bigger concern.
“Banks Furious: Law Says Can’t Lie About Bailout Dilution
Henry Blodget | Oct 18, 08 8:40 AM
The Federal bank bailout will dilute existing shareholders. The banks, however, are frustrated about having to admit that. Thus, a flurry of angry phone calls demanding that the government issue a special exemption to accounting law.
Specifics? The banks are giving the government warrants amounting to 15% of the government’s preferred stock investment. Not surprisingly, these warrants have to be accounted for. They can be treated two ways:
By issuing stock, which will cause immediate dilution
By remaining as a liability on the balance sheet, which will be repriced every quarter and could cause a hit to earnings (if the stock increases, the value of the warrant–and the bank’s liability–follows it up).
The banks don’t want either of those things. Instead, they want to pretend the warrants don’t exist. So they are petitioning for a special exemption that allows them to book the warrants as equity without issuing new shares.”
Also, look for some ‘readjustments’ to pensions in the private sector and eventually the government sector. Employees will sureloy have to start contributing more and getting less.
Remember the Trust set up for UAW workers for Health Care- it is on the endangered species list.
The concern of Blodget’s banks is that they want their cake and eat it too. Oddly, they wouldn’t much like it if you were to ask for a loan with misrepresented assets and income (well, at least now they wouldn’t).
EDIT: On second thought, I wonder if the banks’ yowling on this may be abit of misdirection here. As I understand it, banks with Treasury capital can no longer pay dividends until the capital is paid back.