1/18/09

Banking outrage

Where is the taxpayer equity in all these bank bailouts? NYT details how little is being lent from the new capital infusions, and how the banks are treating it as a "windfall." But it can't be a windfall so long as Uncle Sam -- i.e. all of us --gets equity stakes in these banks commensurate with the taxpayer money we've poured in. That way, at least, once the economy recovers and the banking system is on a sounder footing, we'll get some return for these extraordinary moves. But if government has given these firms sweetheart deals it's intolerable. Yet that's what it looks like Paulson & Company have been doing. Citigroup looks like exhibit A -- we've put $45 billion in capital into the reeling bank, and guaranteed $300 billion in toxic assets, yet so far as I can tell the government owns only 8% or so of the company. How can this be when the capital we put in exceeds the market value of the firm? Once we get the fine print on the Bank of America bailout this week the same is likely to be true. How can it be that Warren Buffet drives a harder bargain than the US government? Obama has to alter all this somehow or the devastation wreaked by these reckless banks and their greedy leaders will be compounded by government incompetence in assuring that the unavoidable rescues only deepened the ripoffs.

2 Comments:

Blogger Sarah said...

I am 100% with you in your outrage. I recently picked up off my bookshelf again a perspective that came out in 2004; that in no uncertain terms articulated concisely the political and economic straights we're now in today. Peter G. Peterson's "Running on Empty" is a compelling argument that set me and my small business on a heightened sense of fiscal conservatism 5 years ago. Where WAS OUR GOVERNMENTAL BRAIN MATTER during this last decade?

In my opinion, Obama did a pretty decent job in selecting his economic team lineup, although I am greatly concerned for it's Rubinesque flavor. For all the wonderful things that we know of Mr. Rubin, it is interesting to me that many of his quotations in Peterson's book completely contradict what he himself has been saying of late; to the effect of "how could we have known this would happen?". Bull! Now the guy has "retired" from Citi??? What a Chump!

In an interesting newsletter I read today by Jeremy Grantham, found through my attempts to make sense of the financial morass at Morningstar, really put a finger on it for me. He said that the Madoff business is really a perfect "capstone" to the entire financial industry scheme of the past 8+ years. In addition, in my opinion, it almost appears that the Baby Boom generation would, in all their self-serving gratuitous "culture wars" and misplaced sense of right and wrong, NOT be happy until they have..........OOPS! bankrupt our nation? Oops! But we're sorry, we didn't mean to! Shoot them all. (I'm born in '63 and lay no claim to that bunch, sorry)

Where is our equity in these banks? My guess is that little lending is occurring because the banks are using TARP funds to strengthen or should I say CREATE otherwise non-existent assets on their balance sheets. If I ran my business the way our government (I'm sorry--I see little distinction between government and Wall Street --I call it WallWashingWorld) and Wall Street Fiduciaries have been, I'd be writing you from jail, which is where Paulson, Rubin, Greenspan, Bush, Clinton et al belong.

I love America and our free-enterprise system, but Greenspanomics and the Reagan Revolution truly has been proven real-life VOO DOO. And a Bush said it himself.

January 25, 2009 at 12:49 PM  
Blogger Paul said...

As bad as that is, I understand the banks are just sitting on the money instead of actually lending it. Someone has to get it straight- is TARP there to simply prevent the banks from going under, or is it there to stimulate the economy? Because if we (the taxpayers) are looking for the latter, we are hard pressed to do a worse job than putting this money into the hands of these guys. Something sure smells fishy...

January 26, 2009 at 3:32 PM  

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