It was with great fanfare yesterday that General Motors announced that it was repaying some $4.7 billion of $6.7 billion in loans it received from the federal government. And, with even bigger fanfare, it was announced that this partial repayment was being made some five years earlier than expected. Read more
I’m quite certain the Obama administration consists of a bunch of fools, and they think you’re a bunch of fools too. Imagine paying off one of your credit cards with another one of your credit cards. Would you think you’ve improved your financial situation? The bozos are considering reducing the deficit with “extra” TARP funds.
Creep. As politicians were selling the TARP fund to Americans, they frequently let us know the hand outs were not hand outs at all, more of a loan that would be paid back. If we agreed with the grand plan – that needed to be approved today – there was a good chance the American people would actually make money on their investment! Hogwash.
Central Pacific Bank received a $135 million injection of capital from the Treasury Department two weeks after Sen. Daniel Inouye (D-Hawaii) had one of his aides contact the FDIC and ask about an application for TARP funds. Nothing illegal here, but doesn’t it smell rotten? Just another symptom of the disease example.
Did anyone notice the big drop (more than 3.5%) in the stock market as of Monday’s close? As the financial stocks seem to have been the hardest hit, the better question, however, is “why”? Well, it seems that this weekend, the latest administration news “leak” landed with a thud, causing an even louder thud on Wall Street.
Here’s the “plan”. Treasury is worried that some of the TARP banks will not pass Treasury’s “stress test”, and it knows that it can’t go back to Congress for more TARP money. So, it is proposing to swap the preferred shares of stock it now has in those banks for common shares. How will that help the banks, you ask? Well, it won’t.
They propose a preferred-for-common swap, which can conjure up an extra $100 billion in bank tangible common equity, a core measure of bank capital. Not that this really adds any new capital; it merely shifts the deck chairs on bank balance sheets. Why Treasury thinks anyone would find this reassuring is a mystery. The opposite is the more likely result…
But, to a Martian landing here today, without benefit of any history, it would look like the bank has an enormous amount of “common equity”…a key statistic in evaluating bank capital, and, presumably a piece of the “stress test”.
Why the concern? As explained quite clearly in the above quoted April 21 editorial from the Wall Street Journal, it looks like the first step (or perhaps, the second) in nationalizing banks. With each share of common stock comes a vote. The government, by means of those votes, would be able to select the bank’s Board of Directors, who, in turn, set the bank’s policies. As an example, loans to “Group A” (whether sound or not) will be granted, and loans to Group B (no matter how sound) will not be granted. Some banks, most notably, J.P Morgan Chase, have indicated that they will not participate in Geithner’s “toxic assets” buy out plan. With control of the common share vote, they will. Most banks are opposed (for good reason) to the bill allowing the Bankruptcy courts to reduce the principal amount of home loans for those in bankruptcy. With control of the common share vote, the opposition will disappear.
And, guess who gets to control the votes that come along with the government’s ownership of banks’ common stock? If you guessed Barney Frank, chairman of the House Financial Services Committee, and Chris Dodd, chairman of the Senate Banking Committee, go to the head of the class. No wonder Wall Street is concerned.
And, now you also know why, even though some financial institutions are ready, willing and able to repay the TARP “loans” the Obama administration has said “no”.
Perhaps of greater concern to Wall Street is what happens when the government tires of playing with banks, and decides to dump millions of shares of bank common stock on the market? The “thuds” just keep getting louder.
I could have written this script last fall – every page of it – if I new that President Obama was going to win the election. There was always going to be strings attached to Troubled Asset Relief Program (TARP ) money that flowed into the private banking system, but it was assumed that when the banks had the funds to “pay back” the government, they would do just that.
It’s looking more like the Obama administration likes the control it’s weilding, and may refuse to take some of the funds back.
Last week, a few small banks did return funds to the Treasury. My guess is that it’s not because they wouldn’t like to have a few million extra available to do business…
“We don’t want to be touched by the stigma attached to firms that had taken money,” said Scott A. Shay, the chairman of Signature Bank. He said he also worried that the conditions on the aid could hurt the way he paid bankers and sales representatives.
In February, Bank of America made a $402 million payment to the government to start paying back the $45 billion it received late last year and earlier this year. In March, Chief Executive Ken Lewis publicly noted BoA would pay the money back by the end of the year. Then, Lewis met with Obama.
Now, Lewis says that they will pay back the money eventually.
From Stuart Varney’s opinion piece in the Wall Street Journal yesterday…
Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons. It wanted to recapitalize the banks to halt a financial panic.
Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He’s been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists. That’s politics talking, not economics.
Could this bank be Bank of America?
I’m not 100 percent certain that Obama is a socialist, but his actions – including government providing car warranties to GM customers – certainly seem to be socialist.
Unlike my brother, I am not one to rant. Occasionally, however, someone in Congress says something that is so stupidly outrageous (or outrageously stupid), that my normal mild mannered demeanor is forced to rant. So, please forgive me, I’m not used to this.
Congressman Grayson, sadly from my home state – though luckily not from my district – recently proposed legislation that would allow Treasury Secretary Geithner to set the salaries of all who work for any company receiving TARP money. Forgetting for the moment that this “law” would create a marvelous bureaucracy of folks who, among their many tasks, would be able to decide what the teller at your local bank should earn, I think it appropriate to dig a bit deeper.
When asked how such a law could be constitutional, the congressman, on national television, pointed to the due process and equal protection clause of the 14th Amendment. Of course, he didn’t mention the 14th Amendment, he only said “due process and equal protection”. Either he is dumber than a rock, or he firmly believes Americans are dumber than a rock.
The 14th Amendment provides, in pertinent part, (as we lawyers would say) that no State shall deprive any person of life, liberty or property without due process of law, nor deny to any person within its jurisdiction the equal protection of the laws. And, yes, that Amendment also provides that Congress shall have the power to enforce, by appropriate legislation, the provisions of this article. Amendment 14 was passed to insure that the 13th Amendment, abolishing slavery, actually had some “teeth”.
On to my rant. How anyone with more than a fourth grade education could hope to say that the above words from the 14th Amendment mean that Congress can pass a law allowing the Secretary of the Treasury to decide the salaries of anyone who works for a company accepting TARP money is more than bewildering. No, it’s demeaning.
Brave young men and women died to fulfill Lincoln’s dream that the phrase “all men are created equal” actually meant that. Thus the 13th and 14th Amendments.
Apparently our “good “congressman cares little of that if he can fool the public with the feels good phrase “due process and equal protection” .
Shame on him.
Certainly, the due process and equal protection clause of the 14th Amendment has been applied to situations other than making sure that all Americans, regardless of their color, have the same rights. But no case that I know of has held that that Amendment allows the Executive branch of our government to decide who should earn what.
And first they came for…
I am more than happy to discuss the “due process and equal protection” clause of the 14th Amendment with the “good”congressman at his convenience. Think he’ll take me up on that?
Cavuto is one of a kind. Now this is how you hold a politicians feet to the fire. Go get em tiger! Read more
Sal Khan of Khan Capital Management is pretty sharp, a frequent guest on CNN, and I think he is pretty spot on in describing the Geithner plan. Read more