Banks Using $700 Billion Bailout To Buy Other Banks, Not Make More Loans
Washington told taxpayers a major rationale for us to fork over $700 billion to banks was to save the American economy by making loans more accessible, but it looks like at least at Chase they rather use it to buy other banks, NYT reports.
Times reporter Joe Nocera listened in on a Chase employee-only conference call and one employee asked, "Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?"
Translation: When are we going to start making loans?The executive moderator replied:
Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase.. What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.
Later, the same executive said,
We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.
Translation: We'll use that $25 billion as a war chest to buy other banks, and hoard it in case times get tougher.
"Read that answer as many times as you want," wrote NYT, "You are not going to find a single word in there about making loans to help the American economy."
Furthermore, a new tax break allows banks to immediately deduct any losses they that are on the books of the banks they acquire.
What is the government doing to make banks use the money for loans? Apparently, jack, except for asking really really nicely. If this continues and banks don't use their government handout to open up loans, this bailout will be the single greatest ripoff in American history, and those responsible are naive if they don't think they'll have a giant bloody revolution on their hands—and I mean that in the literal sense.
So When Will Banks Give Loans? [NYT] (Photo: Getty)
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Leave it to Paulson to push a plan that rewards - surprise - Goldman Sachs and the mega-banks to take our money and blow it in ways that don't benefit the country.
Considering his first draft made him Tzar of $700B w/ no review or reporting requirements, it's due to Congressional dickering that we even heard of this attempt. Let's hope (demand!) for more "interference" until this option is beaten down. Hard.
I'd also like to see a provision banning dividends until each company has returned every tax-payer dime paid, with interest. Otherwise it's a giveaway in a different form.
I guess this puts (another) nail into the coffin of the "businesses can be trusted so let's not regulate them, evah" approach, hmm?
Ha, a new America Revolution? The US has the world's strongest military for TWO reasons, you know.
You give a bunch of spoiled rich boys free money and are surprised they don't want to share? Jesus, you know it's time to chlorinate the gene pool when even one person falls for this crap.
That picture is so freaking creepy...but yet it's creepingly true.
And we just *had* to pass this bill, right Barry? Right John? Right Hillary? Right George? Right Nancy? Right Harry?
The bills and acts that we should be most skeptical of are those of which leaders of both parties come together on. Granted, I'm a partisan hack, so when it comes to bipartisanship, I am usually pretty worried by it.
Hey, if lax government oversight and unchecked greed got us into this mess, it can get us out!
Right?
Who am I kidding, if anybody needs me, I'll be under my desk in the fetal position.
Chase isn't the only bank using funds to purchase other banks, PNC is acquiring National City.
@Trai_Dep: Excuse me. We should be worrying more about making sure we have a financial system that encourages DIVIDENDS rather than gross BETTING (will the stock go up? will the stock go down?). It is a significantly more stable system. If a company has lost money, aka no profit, then it should not have anything to give out as dividends anyway.
On the other hand, if by dividends you meant pay-outs to big-greedy corporate-execs, I am all with you.
So we are angry that banks aren't going to take government money and make questionable loans? This is YOUR money that the government pushed on Chase, B of A and a few others that didn't ask for it or need it. You are the investor - why are you upset they aren't out there doing the things that put us in the spot we are in now?
Look, Jabba the Hutt and the Monopoly Man had a kid!
@Ryan Duff: And they can't deal with guerilla or urban warefare.....
Anyway, revolution is pretty extreme for economic reasons. Very few people (myself included) would consider money enough of a reason to overthrow a government (especially at this point in time). I don't know of any successful revolutions in history that have had money as their primary goal (religion, freedom, yes; money, no)
wait a minute. isn't there some sort of check/balance to make sure the banks are using the money in the spirit in which it was intended, rather than helping build their empire by taking over other, smaller, struggling banks?
You know what? I'm terrified of the new Federal Monomegabankalith that we are creating apace. In fact, it looks like it is deliberate, as two processes seem to be dominating the financial world;
1) Big banks buy slightly smaller, failing banks with government-loan capital.
2) Surviving banks are ordered to turn over stock to government in return for capital to do (1).
Result? We get a federally controlled giant bank monstrosity. Bye-bye, free market. Just remember that we didn't have one of those before, either. Does anyone think this is deliberate consolidation?
Senator Dodd, "If it turns out that they are hoarding, you'll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay."
I can't roll my eyes any harder.
I'll tell you who's loaning out money; has anyone noticed the car commercials lately? The makers and dealers of all these crappy, gas-guzzling luxury SUVs and full-size trucks start their commercials by bragging about how much money they have to loan you if only you'll buy one of their vehicles no one wants.
I pray that's not money derived from the bailout, but something tells me it might just be. Wouldn't that be fabulous? That taxpayer money goes directly into hooking people up with new Escalades so they can continue wrecking the climate apace.
Vote out any representative or senator who voted to give King Paulson that money. Freaking idoits should lose their political positions.
Vote with your checkbook. If your using one of the consumer banks in question, now would be an ideal time to move to a credit union or small local bank.
color me surprised.
In fact, it looks like it is deliberate...
@opsomath: For a while now, my mom has been insisting that most of what's happened in the past few years has been deliberate, including this.
Allow my to express my profound lack of surprise.
Pfffttt... Surprise, surprise.
@maztec: I'm fine with dividends, although I (and Warren Buffet) are more growth oriented for long-term value (and portfolio) creation.
However, if taxpayers are injecting huge amounts of public funds into companies, these companies can't export these funds via unearned pay-outs to shareholders that sat on their hands while these companies immolated themselves. Same with stock repurchases using these funds, or as you point out, exec bonuses: both are mechanisms to transfer public funds into private hands.
So yeah, once they're paid back every dime of our money, with interest, they can do what they like. Until then, they shouldn't be able to transfer our money into their pockets. :)
@WillieT: Yeah, and National City wasn't even in that much trouble, so it's hard to argue that PNC is "rescuing" it or something.
I was reading about this earlier, and someone said they hadn't wanted to put too many preconditions on the bailout funds because otherwise banks wouldn't go for it. Somehow, preventing a business from taking taxpayer money unless it's desperate is a bad idea?
@unpolloloco: The first revolution was mostly for economic reasons you know....
Taxation without representation and all that.
Uh, isn't part of the problem that too many financial institutions got so large that they could take down other institutions with them?
@OletheaEurystheus: That was a tipping point. Along with those British imposed taxes there was also plenty of mass shootings/murder going on too.
PNC just got 3 Billion dollars to buy national city. What I mean is, the fed gave them 7 BILLION DOLLARS to buy national city, which they then only paid 5 Billion for. But National city came with a rebate check of One Billion dollars because of the One Billion of Visa Stock that they have. Of course National City was also told by the Fed that they would not be given any money, and that they would be forced to merge or DIE.
@DavidGurges: Have you tried taking out a loan recently? The same kind of people who have historically paid their loans back are being denied. Small and medium businesses that need to expand with a proven track record of profit can't get loans. Banks are unwilling to take the risk of non-payment on loans, so they're only giving out loans to those that they know they can get the money back on. This money was supposed to change that. By giving them a backing of cash, the risk should be reduced, allowing them to lighten the restrictions on mortgages so that responsible people can once again buy homes.
@CumaeanSibyl: The article explained this, partially. They wanted to make sure all of the banks would take the cash so that none of them looked better than the others, thereby causing a run on one bank so customers could deposit it in a more stable bank. Ironically, the bank in question, Chase, was one of the ones who weren't in trouble, so they didn't need the $25 billion to fix any problems.
I wish Mitt Romney were still on the ballot. John McCain admits he doesn't know jack about this stuff, and Barack Obama II helped perpetuate it after his other democrat buddies started it with Fannie & Freddie.
The problem is that loans have been TOO accesible to people who can't afford to pay them back. The banks that are in a good position to acquire now are the ones that had conservative lending policies over the past several years. These banks will succeed because of their good policy decisions in the past and are in a position to make the economy stronger int future. Now I'm not saying that the bailout was a good idea at all, but the better banks seem to be succeeding in this difficult economic time.
heres an idea:
class action lawsuit?
@Skankingmike: to put it simply, a bunch of ass clowns, all of em. We should really just vote them all OUT.
I hate when the government interferes with commerce. They should only be there to maintain ethical business practices, and break up monopolies... NOT SUPPORT THEM. (Freddie & Fanny)
Revolution isn't always about guns and explosions. Boycott. Heck, use small town banks and credit unions that are not associated with any of the big banks hoarding our tax dollars. Tell your friends and family to do the same.
You'll see some change.
If this was a loan, why can't we call the notes in?
As a former American I can only look on in horror at this state of events (not that Canada would do likewise in similar circumstances, but at least when reporters like this find out, the shit will hit the fan).
Honestly people, did ANYONE think that this "bailout" would not be used by the bankers as a gift?
Everything about this is so wrong and so fucked up that it makes you wonder about what you're not hearing about.
Some information:
- Chase was forced to take the money. Paulson marched the CEOs of the largest banks into a room and essentially made them take the money. Ken Lewis on last week's 60 Minutes said so.
- The government gets a 5% return on the money for the first 2-3 years and then 8% the following years, so its in the bank's interest to pay back the money in the next couple of years.
- This is bank capital. To protect the government investment you want the bank to work in its best self-interest. The banks invariably know the market better than you, I, or even Paulson.
- This is what you get when you invest government funds into a private bank. If you wanted to control where the money goes, create a public bank to loan despite risk/reward. Of course, it's been done before and they called it Fannie Mae and Freddie Mac. And we all know how that worked out...
Privatize profit (capitalism!), socialize loss (we can't allow capitalism to fail, it's too big!).
Apparently "socializing loss" means even more capitalism (with free capital!) for Chase. Good luck with getting back your money, American Q. Taxpayer.
There was this guy and he ran for president and he said like this was a bad idea..
Then there were these two other guys both spouting how this bill needed to pass and they're like running for president as well.. so like.. yea.. we should maybe elect them...
/sarcasm
stupid bill + greedy lobbyists + banking system broken + politicians = American Revolution 2.0?