Sunday, January 18, 2009

Are The Banksters Going To Turn A Recession Into A Depression?


I'm not an economist. I try reading about the economy so that I can make rational decisions, both fiscally and politically. I read a lot-- online, in newspapers and magazines... books. I also listen to people, not to TV talking heads who know less than I do and blather for ratings but to real people who run restaurants and work in various industries and to people working for banking houses and to people being evicted from their homes by banking houses.

A couple weeks ago an old colleague told me he had sold his home for $2.6 million. The buyer was putting down 30% in cash-- $780,000. That's a nice downpayment. Probably means the buyer has got it together in the money field, right? And he does. He has a great, high paying job and is as qualified for a loan as anyone you will ever find. Go tell it to the bank that he asked to finance the mortgage. They turned him down. Banks that were luring in unsuspecting day laborers two years ago with promises that they could buy a house with 5% down and that the value would just keep increasing are now refusing to loan money to blue chip customers. (Point: banksters haven't just cut off bad credit risks in the mortgage market and hedge fund speculators and gamblers, but also legitimate would-be borrowers.)

Another friend is buying a new home for cash. It sold for over half a million dollars a couple years ago but because banks are now unwilling to finance a mortgages, my friend is getting it for less than half that. The banksters are in the way of a healthy credit market and in the way of a recovering economy. Leave them alone and let them do whatever they want, as the Republican members of Congress insist? Well, what about the $700 billion in taxpayer money that was given to them? Why was it given to them? Because we like them? Because we think they should get $100 million bonuses based on their colossal records of failure? No, we were told we couldn't give the money to distressed homeowners or to the unemployed but that if we gave it to the banksters they would start lending again, stimulate the economy, and everything would be ok. They haven't and the financial crisis has deteriorated... significantly.

As we saw last week when Texas right-wing extremist Jeb Hensarling offered an amendment to the TARP legislation meant to prevent Obama's Treasury Secretary from delegating an observer to attend meetings of the board of directors of institutions that take TARP money, 148 Republicans agreed with him that the government shouldn't interfere with the banksters. (25 Republicans, willing to put the nation's fiscal health before their party's failed dogma, crossed the aisle and voted with the Democrats. I should also point out that a pair of reactionary Democrats, Walt Minnick of Idaho and vile Blue Dog Brad Ellsworth of Indiana did what they love most-- voted with the GOP.)
Congress approved the $700 billion rescue plan with the idea that banks would help struggling borrowers and increase lending to stimulate the economy, and many lawmakers want to know how the first half of that money has been spent before approving the second half. But many banks that have received bailout money so far are reluctant to lend, worrying that if new loans go bad, they will be in worse shape if the economy deteriorates.

Indeed, as mounting losses at major banks like Citigroup [whose disgraced CEO, Charlie Prince, was given one of those nice $100 million bonuses when he was ushered out the door for wrecking the company] and Bank of America in the last week have underscored, regulators are still searching for ways to stabilize the banking system. The Obama administration could be forced early on to come up with a systemic solution, getting bad loans off balance sheets as a way to encourage banks to begin lending, which most economists say is essential to get businesses and consumers spending again.

Individually, banks that received some of the first $350 billion from the Treasury’s Troubled Asset Relief Program, or TARP, have offered few public details about how they plan to spend the money, and they are not required to disclose what they do with it. But in conversations behind closed doors with investment analysts, some bankers have been candid about their intentions.

Most of the banks that received the 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.

Speaking at the FBR Capital Markets conference in New York in December, Walter M. Pressey, president of Boston Private Wealth Management, a healthy bank with a mostly affluent clientele, said there were no immediate plans to do much with the $154 million it received from the Treasury.

“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.”

The bankers’ comments, while representing only a random sampling of the more than 200 financial institutions that have received TARP money so far, underscore a growing gulf between public expectations for how the $700 billion should be used and the decisions being made by many of the institutions that have taken part. The program does not dictate what banks should do with the money.

The loose requirements in the original plan have contributed to confusion over what the Treasury intended when it abruptly shelved its first proposal-- to buy up bad mortgages-- in favor of making direct investments in individual banks in return for preferred shares of stock.

The Treasury secretary, Henry M. Paulson Jr., said in October that banks should “deploy, not hoard” the money to build confidence and increase lending. He added: “We expect all participating banks to continue to strengthen their efforts to help struggling homeowners who can afford their homes avoid foreclosure.”

But a Congressional oversight panel reported on Jan. 9 that it found no evidence the bailout program had been used to prevent foreclosures, raising questions about whether the Treasury has complied with the law’s requirement that it develop a “plan that seeks to maximize assistance for homeowners.”

The report concluded that the Treasury’s top priority seemed to be to “stabilize financial markets” by simply giving healthy banks more money and letting them decide how best to use it. The report also said it was not clear how giving billions to banks “advances both the goal of financial stability and the well-being of taxpayers, including homeowners threatened by foreclosure, people losing their jobs, and families unable to pay their credit cards.”

This morning on This Week with George Stephanopoulos David Axelrod claimed that the Obama Administration plans to "send a strong message" to the banksters to get credit flowing again. "We don’t want them to sit on any taxpayer money." We haven't seen Obama stand his ground on one contentious issue yet. This would be a good one to start with, although with Republicans playing games with the confirmation of his Treasury Secretary, Tim Geithner, who knows what kinds of foul compromises at the American peoples' expense will have to be made.

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At 4:54 PM, Anonymous Anonymous said...

Why the hell doesn't the government just start up their own bank with some of the money they are throwing at these criminals, and start lending it? There's plenty of bank staff out of work who could be hired.
But OOOOH that would be SOCIALISM boogaboogabooga. While the Repigs greenlight corporate cronyism that would make Ferdinand Marcos blush.

At 5:16 PM, Anonymous Anonymous said...

Having worked in a bank long ago I promise you the worlds most ignorant people, outside of the churches and Halls of congress are the officers and directors who reside on the boards and in the offices of banks. If these folks had real brains they would be artists or scientists. They have gotten their hands on money and have big houses and lots of cars and send their kids to fancy schools and we assume this makes them smart when nothing could be further from the truth.

Making money and making sense are mutually exclusive. Humans have been turned into honey money bees. Where ever the money is there they will go. Honey bees go to the pollen and without knowing cross pollinate the plants helping to produce fruits and vegetables which is a side effect. The honey money bees go for the money without thinking about the side effects, like: cooling our homes while heating up the planet, fowling our rivers, streams and oceans, filling our landfills with enough junk to fill the grand canyon, polluting our night time with ugly lights and generally destroying the most beautiful planet in the universe which for millions of years have supported life and which now is on the verge of chemical irretrievability all the while making the honey money bees lots of paper money.

It is time to get on a cosmic accounting system based on energy as the accounting unit. Figure out what is really here and how to make it produce the things humanity wants and needs. We must eliminate debt as it was invented as a way of enslaving people. We don't owe the Star Sun which produces more energy than we could ever spend. All the tinkering in the world with the current economic system will not help. The money economy is dead and since it's dead it can't tell us.

Our design/science revolution combined with our endless energy supply can produce prosperity for all.

I feel like the penguin in the comic strip Tom Tomorrow. The more I write the more I am ignored

At 8:10 AM, Anonymous Anonymous said...

why isn't lending to consumers a condition of the bailout money?

At 9:32 AM, Anonymous Anonymous said...

yes, the government should take the tarp money and start their own bank to lend to people and businesses. screw the banks!

At 9:50 AM, Blogger Dr. Know said...

What, no mention of the political weight that uberbanks throw about? Without guidlines and oversight, these moguls will horde the money and endeavour to aquire corporate equity and perks. Society must be punished for electing anyone who doesn't kowtow to the moneychangers. Remember Woodrow Wilson's words:

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men."

This, from the man who signed the Federal Reserve into existence.

At 11:40 AM, Anonymous Anonymous said...

On a National Bank:

Much of the cause for the current crisis lies in the fact that big financial entities sought investments that were, in essence, backed by the government itself. They knew for a fact that, when the house of cards fell, their losses would be taken by the taxpayers. Without any reason to avoid risk, they steered the country directly into the crisis.

Would a national bank, with full backing of the Federal Government, solve this problem? Would its lending be politically sensitive? Does the Fed already assume this role? How would it be regulated, and could it be implemented quickly enough to matter?

My two cents here is that a systematic failure at multiple levels of government occurred. An institutional solution, such as a national bank, would be vulnerable to abuse unless such reform was made such that the systemic illnesses have been remedied.

At 3:41 PM, Blogger Dr. Know said...

a systematic failure at multiple levels of government occurred

Am I to infer from this statement that the poor bankers, some of whom have pocketed $180 million, are in no way to blame? Because these poor lost souls had no government oversight they lost any and all self-control, fiscal responsibility and ethics, and simply couldn't help themselves?

I've seen crack-heads with more honor. Get serious. They knowingly and with great zeal "steered the country directly into the crisis."

That one factor alone proves that they cannot be trusted with the financial future of anyone, much less an entire country's economy. Thieves and liars - like the shills they foist into government; exactly like Woodrow Wilson.


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