Hullabaloo

Saturday, April 11, 2009

 
Shocked Disbelief

by digby


These bankers amaze me. In spite of everything, they continue to flex their muscles and insist that the taxpayers should hand over money with no strings attached and do things their way. Or else.

Remember when Alan Greenspan said this?

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity -- myself especially -- are in a state of shocked disbelief."

Well, I wasn't that shocked, but I confess that I am a bit shocked by their current self-destructive narcissism. The executives of these lending institutions understand their own self-interest to be to do anything they damned well please and to hell with anyone who says otherwise and they are ready to take down the entire system if they don't get their way.

Showdown Seen Between Banks and Regulators

WASHINGTON — As the Obama administration completes its examinations of the nation’s largest banks, industry executives are bracing for fights with the government over repayment of bailout money and forced sales of bad mortgages.

President Obama emerged from a meeting with his senior economic advisers on Friday to say “what you’re starting to see is glimmers of hope across the economy.” But there were also signs of growing tensions between the White House and the nation’s banks over the next phase of the financial rescue.

Some of the healthier banks want to pay back their bailout loans to avoid executive pay and other restrictions that come with the money. But the banks are balking at the hefty premium they agreed to pay when they took the money.

Jamie Dimon, the chief executive of JPMorgan Chase, and two other executives of large banks raised the issue with Mr. Obama and the Treasury secretary, Timothy F. Geithner, at a meeting two weeks ago.

“This is a source of considerable consternation,” said Camden R. Fine, who attended the White House meeting as president of the Independent Community Bankers, a trade group of 5,000 mostly smaller institutions, many of which are complaining about the repayment requirements.

Meanwhile, the Obama administration wants weaker banks to move more quickly to relieve their balance sheets of the toxic assets, the home loans and mortgage bonds that nobody wants to buy right now. But the banks are resisting because they would have to book big losses.

Finally, there is increasing anxiety in the industry that the administration could use the stress tests of the 19 biggest banks, due to be completed in the next three weeks, to insist on management changes, just as it did with General Motors when officials forced the resignation of its chief executive after examining that company’s books.

If only the rest of us had the kind of clout (and chutzpah) to nearly destroy an entire industry, the country and the world --- and expect to be able to dictate the terms of how it's fixed. Oh and then whine publicly about everything being unfair and calling the bailout un-American:

Facing a host of government restrictions — from how much they pay executives to how many foreign citizens they employ — some small banks have returned the bailout money, and some larger ones, including Goldman Sachs, Wells Fargo and Northern Trust, have said they want to do so as quickly as possible.

On Friday, Sun Bancorp of Vineland, N.J., became the sixth bank to exit the program, returning $89.3 million just three months after it received its loan.

Regulators are reluctant to approve the early repayments until banks can show that they have the capital to withstand further erosion in the economy and will not curtail their lending.

Both large and small banks have pressed the Obama administration to make it less costly for them to exit the bailout program by waiving the right to exercise stock warrants the banks had to grant the government in exchange for the loans. At a meeting last month, the chiefs of three of the largest banks separately asked Mr. Obama to direct the Treasury not to exercise the warrants, Mr. Fine said.

Douglas Leech, the founder and chief executive of Centra Bank, a small West Virginia bank that participated in the capital assistance program but returned the money after the government imposed new conditions, said he complained strongly about the Treasury Department’s decision to demand repayment of the warrants. That effectively raised the interest rate he paid on a $15 million loan to an annual rate of about 60 percent, he said.

“What they did is wrong and fundamentally un-American,” he said. “Even though the government told us to take this money to increase our lending, the extra charge meant we had less money to lend. It was the equivalent of a penalty for early withdrawal.”

Basically he's saying that it's un-American for the US Government to try to save the banking system in spite of the fact that the people running it are such short sighted, greedy, self centered jackasses that they refuse to be saved unless they get to fuck things up all over again. (Oh, and make a killing doing it.) I'm not against these banks paying back the TARP money but they have to live up to the agreements they made when they took the money --- just like I do when I have to pay a penalty for early withdrawal. After all, they have a rather nice alternative: they could just loan the money to someone, which was the intent of the program. But then they'd have to live under the threat that the big bad gummint is coming to take their bonuses and that's just unacceptable to these pampered princes.

Nobody wants to take on the ruling class, particularly once they've become (or were born into) the ruling class themselves. But there are times when it's very dangerous for politicians not to do it and this is one of those times. If the bankers insist upon preserving their prerogatives in spite of all they've done and continue to carry on like a bunch of French aristocrats, they have to be taken on or risk something much more politically destabilizing.

Obama is playing with fire by trying to appease these guys, even if he's convinced that the best thing to do is simply restore the system to what it was. They are too far gone. If he doesn't decide to take on systemic reform we're going to find ourselves in a worse mess not too far down the road.

Greenspan was shocked because he thought these guys were operating out of self-interest and it turned out they were actually quite stupid and self-destructive. They just keep proving it over and over again.


digby 4/11/2009 11:35:00 AM |