After Rick Warren, I mean.
Most of the banks that received the [TARP, or federal bailout] money are far smaller than behemoths like Citigroup or Bank of America. A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future.
Ah. You see, I had thought that the reason for this bailout was to unfreeze the credit markets so that banks, which supposedly were afraid to lend, would start lending again so that businesses would be able to meet payroll, etc. You know, a bailout of Wall Street to help Main Street, and all that. But I guess local boy Walter Pressey, the president of Boston Private Wealth Management — a beneficiary of taxpayer largesse to the tune of about $150 million — doesn’t see it that way.
“With that capital in hand, not only do we feel comfortable that we can ride out the recession,” he said, “but we also feel that we’ll be in a position to take advantage of opportunities that present themselves once this recession is sorted out.”
And here are some more choice quotes from a banker who, at least, appears to be telling it like it is.
At the Palm Beach Ritz-Carlton last November, John C. Hope III, the chairman of Whitney National Bank in New Orleans, stood before a ballroom full of Wall Street analysts and explained how his bank intended to use its $300 million in federal bailout money.
“Make more loans?” Mr. Hope said. “We’re not going to change our business model or our credit policies to accommodate the needs of the public sector as they see it to have us make more loans.” … “[T]he main motivation for TARP” was not more loans, but rather to safeguard against the “possibility things could get a lot worse.” He said Whitney would continue making loans “that we would have made with or without TARP.”
“We see TARP as an insurance policy,” he said. “That when all this stuff is finally over, no matter how bad it gets, we’re going to be one of the remaining banks.”
You know how the big criticism of “stimulus” packages that are focused on a one-time tax rebate to individuals is that they don’t work because people tend to save that money, or use it to pay down debt, rather than putting it back into the economy? Seems that the same principle holds true for financial institutions.
Here’s another good one.
John R. Buran, the chief executive of Flushing Financial in New York, said the government money was a way to up the “ante for acquisitions” of other companies. “We can get $70 million in capital,” he said. “So, I would say the price of poker, so to speak, has gone up.”
Yes, I’m sure that’s exactly what folks had in mind when they backed this thing.
What a disgrace. So Bush got his $350 billion, and he and Hank Paulson appear to have flushed it down the crapper. Now Obama’s got his $350 billion. He had better make good on his promise to dole it out in a different, more transparent, more effective way.
… was seen as a risky investment for a lending bank, how does having more money to lend change that? I remember guy in the 90s talking about corporate tax rates and how much they have declined. He pointed out that even in a high tax environment, in an expanding market a businesses best move is to expand, and even in a low tax environment, in a contracting market a business’ best move is to contract. The risk profile of lending is similarly independent of the amount of money to lend. That fact was lost on investors when there was all this money. Now that they’ve learned, making more money available to lend won’t produce the same flurry of lending.
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p>It is entirely up to “us” — the net roots maybe, to organize ourselves and track the allocation on the federal and even more criticaly , on the state level. I know the administration and key committees in the House and Senate along with dozens of energy/green/health/children/elderly/housing folk are spending a lot of their resources tracking and evaluating the decision. Maybe BMG can track them and ask them to share.
Reid and Pelosi control the purse strings not the president. This all was done by CONGRESS. You know—the DEMOCRATICALLY controlled legislature. The solons who stampeded back to Washington to vote for this obscenity. When the Republicans balked they were warned that they would be lynched on the capitol promenade. Give me a break. This bailout debacle can be laid at the footseps of the idiots in congress who voted for it. Did they think that the financial scumbags that got us in this mess were going to behave any less malevolently? As you know–many democrats and republicans voted against it as insanity, but the majority of the panicked mob ie congress AKA the deliberative legilsative body, voted for it amidst wails and crys, and the rending of clothing. Morons like Barney Frank and that alleged thief Chris Dodd ( you know—the guy who received the sweetheart loans)? You put a pile of money in front of a thief and expect what— a religious conversion? Jesus Christ!
The operation of the economy is clear at this point. If you have enough money, you buy into the mercantile system of controlled interest rates. The upswing in rates (2005-2006) decimates the wages of your workers and raises unemployment.
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p>What you’re seeing in this article is the downswing in rates, and the holders of the capital getting ready to buy low.
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p>The worst thing for the upper crust is meritocratic social competition from below. The liberal upper crust conspires with conservative upper crust to destroy accumulation of capital at the level just below their own class.
Not are capable of paying it back, or have good intentions of paying it back, but WILL pay it back. Banks are in business to make money–they are not do gooders, charitable institutions, or welfare. We are in this economic catarophe because congress put a gun in the back of bankers and said, “lend, or we will put you out of business”. So the gutless wonders in banking instead of hiring lawyers and suing and then being put out of business, capitulated and now we are where we are—actually—-we have no one to blame but ourselves.We elected those idiots on capitol hill.
Two comments, David;
First, banks operate under a myriad of federal and state regulations that are disincentives to loan money to risky propositions. If Banks were to loosen loan requirements in order to loan more to greater risk borrowers, the regulatory system would ask the banks to increase their loan loss reserves; may place them on watch lists creating more cost for the banks; and may cost banks more money in order to conduct business. Risk avoidance is the mantra of regulators today and that stifles the (smaller hometown) banking industry.
Second, the feds are planning, in my opinion, to decrease the number of banks we have in America. This is bad for us in Massachusetts where we have a disproportionate number of small cooperative or mutual banks. Federal regulators know that we can’t afford to tap FDIC for a large number of bank failures or closures in the US, so they are “guiding” banks to merge or buy out the weaker banks. The policy of the Bush administration last year on allowing banks to take a tax credit when they merge with a weaker bank also points in that direction.
OK, more than two points: I think this is wrong, but you can’t blame banks for this. The TARP money is not without strings and these include a pretty substantial payback provision that discourages banks from making risky loans or lowering percentage rates.
What should we do? Ok, two more points:
First, we need to look at what business needs today for capital. The old manufacturing sector where a widget factory would go out and buy a widget machine and start production is not the model for new businesses. Two example of this are the life science and defense industries in Massachusetts. In the life science model, a business may go a decade or more before realizing a return on investment. A commercial bank can’t loan money to a business (with little physical collateral) that may or may not be repaid in a decade. In the defense industry, I talked with businesses that received Federal SBIR (small business innovative research)money in order to develop new products. However, as soon as a product is developed, SBIR goes away and conventional financing doesn’t start until the new product is commercialized. This is clearly a problem.
Second, TARP money runs the risk of merely reloading the market that was not performing correctly. if we recapitalize the larger banks and don’t change the rules for smaller banks; or worse, if we push for a new financial sector with a few large banks, we run the risk of continuing to encouraging the market to behave and conduct business as it has over the past decade or so. This is irrational.
To conclude there are not enough or just the right number of banks in Massachusetts seems as presumptuous as deciding there are too many, although, IMHO, it does seem appropriate to not discourage merger inasmuch as some low-capitalized banks will be consumed, much the same way they’ve been merged throughout banking’s history.
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p>And re: your perceived problem of commercial bank’s inability to deal with start-up companies, and in particular to life science and defense. Do you realize how much venture capital money in the form of hedge funds and mezzazine lenders there it out there?! In the pyramid that is a company’s equity, there’s i) owner’s cash, ii) commercial loans then iii) mezzanine. In the world that’s drug science, commercial banks typically fund the hard assets, and the mezzanine and venture capitalist step up for the rest. That’s been recent history and I can’t see your justification for saying it’s been inadequate. Loosening commercial standard to allow them to step up to 10+ financing with ‘outcome’ as the collateral is a dangerous road, as speculative as and comparable to subprime lending.
I am not saying that there are enough banks, too many or we are just right. I am saying that larger banks have had larger problems and in Massachusetts where we still have a number of “hometown” banks, we can still understand main street businesses with main street banks. Let the market figure this out without a boost from the regulatory community.
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p>As for VC money, which comes in many forms; you are correct that this is where money is coming from today. However, it is moving downstream and start up, pre-proof of concept stage firms, and many precommercialized defense and hi-tech firms are looking for money. We need to look at this. A study was done by UMass Boston about 1 1/2 years ago and capital was not a worry for many companies that responded to their survey. Today, for the first time in many years, I have heard from a considerable number of companies that capital is indeed a worry. We are now looking to Angel investors for start up and venture capitalists for downstream investments. However, we need to look at how the conventional finance sector can assist in the development of new technologies.
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p>I was not suggesting that we loosen up regs in order to let banks invest in 10+ speculations. Mutual’s and coops have fiduciary responsibilities that shouldn’t allow them to do this even if regulations were taken away completely. However, we do need to look at the role of banks. Perhaps agencies that deal with new technologies could vette these technologies to give advice over what is realistic and what is truly speculative. Perhaps quasi-public agencies could offer loan guarantees in order to reduce risk. You can’t just throw money at the large banks and expect that things will get better. Our economy is changing and we need to look at the needs of the market and how we react to it.
Bush: We need the TARP now, we need it fast, trust us.
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p>Obama: We need the TARP now, we need it fast, trust us.
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p>Banks: Yum. We’ll invest it in 10 year treasuries and buy other banks.
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p>Gov: Ok, that plainly didn’t work. Let’s buy all those bad assets from the banks and store them into a big national bank kinda like we did in the 1980s with the RTC.
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p>Banks: (backing up the truck). Ok, here ya go; thanks for the cash. Which we’ll invest in 10 year treasuries and buy other banks.
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p>Gov: Ok, we’re seeing a pattern here.
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Gov: Ok, that plainly didn’t work. Let’s do this. If you invest in
crapgreen ventures, wind mills, solar panels, cars that run on hamsters, and buildings with the names of politicians, we’ll guarantee the loans.<
p>Banks: (the sound of lending like crazy)
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p>Borrowers: (giant sucking sound)
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p>Tarpe diem
According to this Globe article, several local banks are prepared to start making more loans. This is good news, yes?
BTW, the phenomena described. Aren’t we wittnessing the birth of the Zombie Banks.
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p> Living, not insolvent, but not lending and therefore, dead.