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April 20, 2009

Comments

Brett, Sebastian, do you have any reputable cite for banks being 'forced' to accept TARP money? I've looked around and haven't found any.

No, Cato, Heritage, et al are not reputable cites, and no, telling banks that if they don't take money now that if they need it later they will receive less favorable terms is not 'force'. I would have thought force would have been 'at the point of a gun'. You know, like the government collects taxes. Supposedly.

So let's see these cites.

It appears that, while the banks theoretically could refuse the money, banks are sufficiently vulnerable to federal regulators' arbitrary decisions that they were under a lot of pressure to do what the government was telling them to, even if they weren't legally required to.

At least, a fair number of bank executives say that they weren't given any real choice. US Bankcorp CEO Richard Davis:

"I will say this very bluntly: We were told to take it. Not asked, told. 'You will take it,' " Davis said. "It doesn't matter if you were there on the first night and you were told to sign on the dotted line before you walked out of the office, or whether in the days that followed, you were told to take it."

"We were told to take it so that we could help Darwin synthesize the weaker banks and acquire those and put them under different leadership," he said. "We are not even allowed to mention that. ... We were supposed to say the TARP money was used for lending."

You're not posting any evidence Brett. Where is this evidence? Or is this the closest you can get to an admission that you don't have any?

Ok, a bank CEO saying he was forced to take the money isn't evidence that he was forced to take the money. Have it your way, this is a waste of time.

You're right. It is a waste of time. Because you won't come through. Why don't you post something by an administration official, Paulson, say, or Bernanke? And from a reputable source, like the NYT? Instead of from people whose reliability is suspect to put it mildly, and have every incentive to misrepresent the situation. I'm guessing you won't even admit to the fact that they do stand to gain if they are allowed to pay back those monies with no penalty.

What's doubly funny here is that even you can't come up with a mechanism by which this transfer of funds was 'forced'. And that once again, you are making not the remotest attempt to be persuasive.

Wow. Lowering your limit and then charging you overlimit fees is crazy!

Yeah, kinda like deliberately clearing the largest items from your bank account first, so that if you're going to be overdrawn, you'll be overdrawn on several small items rather than one large item, so that the bank can charge you multiple NSF fees rather than one. This is SOP for banks. They do it every single day.

Ok, a bank CEO saying he was forced to take the money isn't evidence that he was forced to take the money.

You're missing the "or else". And if the only "or else" is the threat of an audit, then I discount pretty much everything that Davis says.

A bank CEO saying he was forced to take money isn't even evidence that anything like that occurred. These are not trustworthy people, they are people who have every incentive to distort, deceive, misdirect and flat-out lie. I'd like to see some transcripts of this supposed incident, or failing that, some corroboration from the government side.

I've looked for a while on Google using every search string I can think of, following links, etc, and I just can't find anything that's not some sort of right-wing site or hearsay. You'd think that if this actually happened, I could get the story from CNBC, the NYT, Meet the Press, . . . but nothing. Nada. Zip.

You want trustworthy sources, or http://www.commentarymagazine.com/blogs/index.php/rubin/63031>somebody from the administration? Got to make up your mind, it can't be both.

Uh-huh. So why don't you actually give some cites? Not hearsay from unreliable bankers.

You can't, can you? But you want me to believe you anyway. Is that about the size of it?

Yes, you wouldn't want any cites from the people who were actually there, would you? What are first hand accounts worth, anyway, compared to administration talking points?

Why should I believe these particular people? And what sort of 'force' do they claim has been brought to bear? Finally, why don't we have any quotes from administration officials who were at that meeting?

These aren't difficult questions to answer.

It is not a matter of controvery that in the initial round nine banks were pressed by Paulson to take various amounts of TARP funds by way of selling the treasury preferred stock with a 5% coupon (with warrents attached).

Looking back we see that, at the time, a few like C and BAC needed the extra capital but others like JPM, GS and WFC did not. Paulson made it clear, however, that each of the nine largest banks did not have a choice in the matter but that all would take the deal so no one could be singled out as in need of government rescue.

Later this was expanded into the TARP Capital Purchase Program and was opened up to all banks. These later participants had to apply for funds, the treasury did not approach them.

The official position of the Treasury is that this entire program was voluntary, but that is not completely true. To get the program started the first nine banks were strong-armed into going along with the deal. The rest, however, were in fact voluntary participants.

It should come as no surpise to anyone that a few of the voluntary participants have already redeemed the preferred shares determining that the subsquent restrictions inposed by Congress and Treasury were not worth the trouble. In each case there was a nice profit to the treasury.

Phil,

I have another one, from my latest bank statement.

Three items cleared in one day--two bill payments and my direct deposit payroll.

They were posted @ 6pm, @ 6:30pm, and @ 5am, respectively.

Guess which two posted first on EOD reconciliation, which would have caused an overdraft if I didn't have enough funds prior to the payroll.

Messed up: yes
Fraudulent: yes (attempted theft by deception)
Legal: yes (Fed rule allows banks to post items how they want when received on same business day, so long as they are consistent)

"To get the program started the first nine banks were strong-armed into going along with the deal.

...

In each case there was a nice profit to the treasury."

Nifty deal that, forcing banks that didn't need to be bailed out to take loans they didn't want, AND making a nice profit on it.

Brett, none of the first nine banks have redeemed the preferred shares, yet. Citi may never redeem them but may instead convert them to common shares. All nine have paid fat dividends into the treasury while imposing deep cuts on the dividends paid to private investors.

I am aware of five smaller banks that have actually redeemed their preferred shares already. (Read it on Bloomberg) The 'profit' to the treasury comes from the 5% dividend paid, which cost the treasury 2-3% in borrowing cost.

Nifty deal that, forcing banks that didn't need to be bailed out to take loans they didn't want, AND making a nice profit on it.

I believe the Bush administration complaints dept. has shut its doors, so I guess you and the banksters are SOL on that one. Though there is the consolation that as a taxpayer you came out ahead on the deal to consider.

Brett: Please re-read the following:

"It should come as no surpise to anyone that a few of the voluntary participants have already redeemed the preferred shares determining that the subsquent restrictions inposed by Congress and Treasury were not worth the trouble. In each case there was a nice profit to the treasury."

Ok, let me be clear:

1. Is there any reason to believe that the banks which were forced to take the loans won't similarly end up paying a "nice profit to the treasury", if they're ever allowed to redeem those shares, which really stinks for a deal they couldn't say "no" to.

2. They didn't want or need the loans, are equally subject to the subsequent conditions; If they haven't redeemed those shares, isn't this pretty good confirmation of stories that the feds aren't letting them pay the loans back even though they could, and want to?

Forced to take a loan they don't want, terms unilaterally changed after the fact, not permitted to pay it off. Why should I cheer about the treasury department getting into loansharking?

"Though there is the consolation that as a taxpayer you came out ahead on the deal to consider"

Um, no: The treasury came out ahead on the deal. The treasury not being the same as the taxpayer.

The treasury came out ahead on the deal. The treasury not being the same as the taxpayer.

So the government doesn't need to tax you as much or borrow as much, which means you come out ahead, right?

Brett, only a few banks were actually pressed into the deal by Paulson. Citibank may never redeem the preferred shares but instead may end up converting the treasuries senior preferreds into common shares. At least that is the agreement they have with Treasury should they need to go that route. JPM can redeem the shares right now but will not be allowed to until they can raise capital through unsecured bond sales. Right now they are using the FDIC guarantee (for three years) to sell bonds. GS has recently raised private money with a common equity secondary issue. But again, as long as they cannot sell unsecured bonds they will be in need of the capital provided by the TARP Capital Purchase Program. WFC and some of the other banks are in the same situation.

Those that do not need the capital provided by the preferred shares and can sell bonds outside of FDIC insured program are the ones who can 'escape' the additional restrictions imposed by congress and the treasury on their operations by redeeming the preferred shares.

In spite of the nice profits (used to shore up capital) made by many of the large banks in the first quarter they are not yet out of danger. I suspect the treasury will enjoy collecting some fat dividend payments on their holdings for another year or two.

While it is still early I think that we make money in the long run on the treasury investments.

It is not a matter of controvery that in the initial round nine banks were pressed by Paulson to take various amounts of TARP funds by way of selling the treasury preferred stock with a 5% coupon (with warrents attached).

Looking back we see that, at the time, a few like C and BAC needed the extra capital but others like JPM, GS and WFC did not. Paulson made it clear, however, that each of the nine largest banks did not have a choice in the matter but that all would take the deal so no one could be singled out as in need of government rescue.

You keep saying this as if it will make it somehow true. Again, where is the evidence that these banks were 'forced' to take money? What power of government was brought to bear, explicitly? Were the heads of banks threatened with jail? I'm not even sure the government even has the sort of powers you're claiming for it.

SOV

"I'm not even sure the government even has the sort of powers you're claiming for it."

The major asset class of banks is loans. Estimating the collectability of a loan is a subjective endeavor. All the govt has to do is get the FDIC or Federal Reserve to conduct a bank examination and come to the conclusion that a banks loans are substantially less collectable than has been previously thought. Suddenly the bank would have to take a big loan loss reserve which would appear as a loss and reduce capital. The bank could be forced in this way by the stroke of a pen into having a regulatory capital deficiency. The feds could issue a cease and desist order which would prevent the bank from lending. The FDIC could withdraw it's insurance. Poof. Instantly there is a run on the bank. The bank is gone.

You are naive if you think Paulson's threat was not force.

Paulson: "If you don't take the money now you might not be able to get it if you need it later"
Wells Fargo: "Uh...why would I need it later?"
Paulson: "Isn't your quarterly bank examination starting in a couple weeks? Wink Wink"

"So the government doesn't need to tax you as much or borrow as much, which means you come out ahead, right?"

If the government is taxing as much as it can get away with, and borrowing every cent people are foolish enough to give it, no, it just means it has that much more to spend on increasing it's control over the economy.

If this bailout has taught people anything, it's a lesson politicians are very happy to have everyone learn: Campaign donations have a much higher rate of return than any real investment.

Having that be true is a terrible thing for a country.

Since I was the one wondering how the fed was forcing banks to take money this certainly bolsters the case:

In an interview with this Office, Secretary Paulson largely corroborated Lewis's account. On the issue of terminating management and the Board, Secretary Paulson indicated that he told Lewis that if Bank of America were to back out of the Merrill Lynch deal, the government either could or would remove the Board and management.

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