Banks to Government : Take your Money And Shove It

TheBrutalTruth · #1 03-11-2009, 08:22 AM

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March 11, 2009
Some Banks, Citing Strings, Want to Return Federal Aid

By STEPHEN LABATON
WASHINGTON — The list of demands keeps getting longer.
Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens.
As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.

The conditions are necessary to prevent Wall Street executives from paying lavish bonuses and buying corporate jets, some experts say, but others say the conditions go beyond protecting taxpayers and border on social engineering.

Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn., and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs and Wells Fargo.
They say they plan to return the money as quickly as possible or as soon as regulators set up a process to accept the refunds. On Tuesday, Signature Bank of New York announced that because of new executive pay restrictions in the economic stimulus package, it notified the Treasury that it intended to return the $120 million it had received from the government only three months ago.

Other institutions like Johnson Bank of Racine, Wis., initially expressed interest in seeking bailout funds but have now changed their minds. Bank executives told The Milwaukee Journal Sentinel that one reason they rejected the government money was to avoid any disruption in the bank’s role in the local community, including supporting the zoo or opera company if they chose to.

One of the biggest concerns of the banks is that the program lets Congress and the administration pile on new conditions at any time.
The demands to modify mortgages or forestall evictions are especially onerous, some bank executives and experts say, because they could prompt some institutions to take steps that could lead to greater losses.
“We are taking an approach that wants the banks to help the economy and whether it is ultimately good for a particular bank is secondary,” said L. William Seidman, the former senior regulator during the savings and loan bailout. “Weak banks are being asked to do things that will erode their position.”

A senior Treasury official involved in the bailout effort said the administration was carefully trying not to do anything that could harm the banks and was giving financial incentives to modify mortgages. The official said the restrictions were part of a larger effort to clean up bank balance sheets and assist the economy.

“We’re having to take some very unpleasant actions when the alternatives are so much worse,” said the official, who spoke on condition of not being identified.

But a growing chorus of industry experts are warning that asking weak banks to carry out the government’s economic and social policies could increase the drain on the public purse. These experts say that the financial assistance, while helpful in the short run, could force weak banks to engage in lending practices that will lose even more money, and that the government inevitably will become more heavily involved in dictating how banks do business.

“I honestly believe the people in power pushing this policy see it as a win-win — as something that is good for the banking industry and good for homeowners and others,” said Douglas J. Elliott, a former investment banker who is now an economics fellow at the Brookings Institution. “But there is a slippery slope and there are potentially significant negative consequences.”

Mr. Elliott says that by modifying loans, banks that are already fragile could wind up losing more money.

“What gets us in real trouble,” he said, “is when we try to fudge things and pretend that something is in the direct interest of both the government and the financial institutions when it in fact costs the banks money or increases their risk levels.”

Take Fannie Mae and Freddie Mac, the housing-finance companies that the government now controls. In recent months, they have been told to spend billions of dollars buying bundles of mortgages for which there are no other buyers, and to let homeowners refinance their loans — even if they have no equity.

Such commands are echoes of the 1990s, when Fannie and Freddie tried to balance dueling mandates that required them to make a profit for their shareholders and to serve a public mission of increasing homeownership.

In service of both shareholders and what they asserted was the public good, they borrowed extensively in order to buy and hold mortgages in their own investment portfolios. They purchased billions of dollars in risky subprime mortgages.

As a consequence of having a public mandate, they also had a credit line with the Treasury and their risky business strategies were viewed by the markets as being guaranteed by the government.

To satisfy both mandates, the companies also faced fewer restrictions and were allowed to take on more debt than other financial companies. But when buyers began defaulting and home prices plunged, the companies nearly collapsed and last fall were placed under government conservatorship. Mr. Elliott said that some banks participating in the bailout program are now in the same conflicting position that Fannie Mae and Freddie Mac were in.

He and other experts also worry that, by relying on weak banks to carry out the administration’s or Congress’s policies, officials are not biting the bullet and shutting down weak banks that may be insolvent.
At the height of the savings and loan crisis in the 1980s and 1990s, Congress and regulators adopted new rules known as “prompt corrective action” that required the government to quickly close weak financial institutions if they could not raise money to absorb mounting losses.

The rules were a response to a consensus that keeping weak institutions open longer, under an earlier practice known as forbearance, damaged healthy banks competing with the government-subsidized ones and ultimately destabilized the banking system. By shutting weakened institutions before their losses grew, prompt corrective action was also seen as less costly to taxpayers and the deposit insurance fund.

Administration officials say that some of the banks at issue today are simply too large to be seized by the government, making comparisons to the savings and loan crisis less meaningful.

Moreover, they say, the public outrage over the growing cost of the bailout makes it politically imperative that they exert greater control over the way the money is being spent.

But by keeping weak banks operating, the markets continue to sink and taxpayer costs are mounting, outside experts said. “The current policy is likely to result in weaker banks,” Mr. Seidman said. “And keeping insolvent banks in operation does not benefit the system.”
Some community bankers, whose institutions are stronger than the large money center banks, agree.

C. R. Cloutier, the president of MidSouth Bank of Lafayette, La., and a survivor of the savings and loan debacle, said that his institution received $20 million from the rescue fund because he and his board believed it was patriotic and would help them offer loans during a recession.

But faced with what he says is an unwarranted stigma of participating in the program, as well as the new restrictions on banks taking the money, he is now considering whether to return the money, as other institutions have sought to do.

“Two things you learn in the banking business,” Mr. Cloutier said. “The first is, concentration is bad. We now have 64 percent of deposits in eight institutions. The second rule is, your first loss is your best loss. Get it over with. Don’t pump water in a dead fish.”

Well, hopefully the Banks will return on that money to the government quickly...

I don't relish the thought of more government control in banking, after all it was the Not Not-GSEs Fannie and Freddie that caused this problem.

medicineman · #2 03-11-2009, 10:08 AM

Sounds like those execs didn't want a pay cut to me, typical arrogant CEO bullshit. Let the company fail, just don't cut our pay. What a fucking Joke.

ViRedd · #3 03-11-2009, 01:03 PM

Quote:

Originally Posted by medicineman

Sounds like those execs didn't want a pay cut to me, typical arrogant CEO bullshit. Let the company fail, just don't cut our pay. What a fucking Joke.

Bullshit. There are plenty of solvent banks that acted responsibly and who are not upside down. They are declining the federal money, or returning it because they don't like the strings that are attached to it.

And, if a bank acted responsibly through the mess we've come through, and is still earning a profit, and the shareholders are happy, who are you to say the executives don't deserve their pay?

Do you ever read the posts, Med ... or do you just assume what is said, then post your nonsense?

Vi

NorthwestBuds · #4 03-11-2009, 06:41 PM

Quote:

Originally Posted by ViRedd

Bullshit. There are plenty of solvent banks that acted responsibly and who are not upside down. They are declining the federal money, or returning it because they don't like the strings that are attached to it.

And, if a bank acted responsibly through the mess we've come through, and is still earning a profit, and the shareholders are happy, who are you to say the executives don't deserve their pay?

Do you ever read the posts, Med ... or do you just assume what is said, then post your nonsense?

Vi

That's funny I was ALWAYS thinking the same about you.

You are the worst excuse for a California man that I have ever read in my life.

ViRedd · #5 03-11-2009, 06:55 PM

Quote:

Originally Posted by NorthwestBuds

That's funny I was ALWAYS thinking the same about you.

You are the worst excuse for a California man that I have ever read in my life.

And a "California Man" is???

Do you have anything positive to add to this thread?

Vi

NorthwestBuds · #6 03-11-2009, 06:58 PM

Quote:

Originally Posted by ViRedd

And a "California Man" is???

Do you have anything positive to add to this thread?

Vi

Yes GTFO mister 10,000 + loser.

ilkhan · #7 03-12-2009, 03:43 AM

Contrary to popular opinion there where people who saw this coming and did the right things. Certain banks among them why punish them? They are the one's who should be thriving but for the damn bail-outs. Good God we don't even know to whom the FED is handing out Trillions with a T, too. The FED printed 2+ Trillion bucks and handed it out with NO oversight at all!

I had to explain to my wife how much money a Trillion $ was, she had no Idea. She said "how many Humvee's could I buy with a Billion?" I said "well at $50k a piece 20,000" Her Jaw dropped. I said "with our current debt we could buy 220 million Humvee's or 1100 Fully manned Aircraft Carriers with all the Planes and weapons and electronics included." With the money the FED just printed with no oversight $2+ Trillion we could buy 200 aircraft carriers or 1 fully manned and operational Battlestar with the FTL drive." I'm only kind of kidding in that last part. They just handed God only knows who 15% of our national GDP for Christ's sake!!

This is the biggest swindle in the history of swindling!! We are literally being sold down the river and we are arguing about the banks that didn't want the money LOL. God we are so stupid!!

misshestermoffitt · #8 03-13-2009, 05:52 AM

Should a bank who is receiving taxpayer bailout finds hire foreign employees? I think no.

Should bank CEO who's banks are failing and need taxpayer bailout funds be receiving pay raises? I think not.

They shouldn't expect "free money" with no strings attached. Maybe they should go through the same loan process that individuals have to go through, jump through all those same hoops.

I wonder, if they did have to apply for a loan with the same rules and regulations as a citizen, would they even qulaify for the money? I doubt it......

max420thc · #9 03-13-2009, 06:27 AM

Quote:

Originally Posted by medicineman

Sounds like those execs didn't want a pay cut to me, typical arrogant CEO bullshit. Let the company fail, just don't cut our pay. What a fucking Joke.

why dont you grow a brain.
a good competent man will not work for the amount the socialists are dictating to the banks.
for only a half million dollars a year and all that head ache? you got to be fucking stupid.
most intelligent people make that easy.just investing and trading,why would a smart man work for peanuts?

misshestermoffitt · #10 03-13-2009, 07:25 AM

only a half a million dollars a year

how can they live on such a pittance....

If you're getting paid a half a mil per year and your bank is going down the tubes, it's time to think really hard if you are earning your money.

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