Corporate Welfare

Too Small to Bail

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From today's Washington Post, a story headlined "Smaller Banks Resist Federal Cash Infusions":

Community banking executives around the country responded with anger yesterday to the Bush administration's strategy of investing $250 billion in financial firms, saying they don't need the money, resent the intrusion and feel it's unfair to rescue companies from their own mistakes….

Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, [Virginia,] said he was "much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government."

At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady Adams said he has more than 2,000 loans outstanding and only three borrowers behind on payments. "We don't need a bailout, and if other banks had run their banks like we ran our bank, they wouldn't have needed a bailout, either," Adams said.

The opposition suggested that the government may have to continue to press banks to participate in the plan. The first $125 billion will be divided among nine of the largest U.S. banks, which were forced to accept the investment to help destigmatize the program in the eyes of other institutions.

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  1. Where were these small banks speaking up when we needed them to make a big statement to the public before the “bailout” passed?

  2. Naga,

    They were speaking, but nobody wanted to print/air what they had to say.

  3. We’re from the government: We’re here to help (whether you want tit or not).

  4. Dello,

    I know. Still felt good to post it though.

    (whether you tit or not)? Depends.

  5. Where were these small banks speaking up when we needed them to make a big statement to the public before the “bailout” passed?

    May be among the 100-1 calls against to their Congressman.I didn’t see much MSM time devoted to anyone opposing the bailout.

    Reportedly, the Wells Fargo CEO objected to the State investment yesterday.Paulsen told him he didn’t have a choice.

  6. At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady Adams said he has more than 2,000 loans outstanding and only three borrowers behind on payments.

    That can’t be right; they have a Satisfactory CRA rating.

  7. Naga,

    I doubt they had press agents to put out news releases to the wire agencies.

    Not like it would have made any difference. The fix was in.

  8. I remember many local and regional banks speaking up during the run-up to the bailout, Naga.

  9. The first $125 billion will be divided among nine of the largest U.S. banks, which were forced to accept the investment to help destigmatize the program in the eyes of other institutions

    Forced. Interesting how they just sort of gloss over the government forcing businesses to do things like take money they don’t want.

    (whether you tit or not)? Depends.

    On what?!?

  10. Epi,

    Depends on whether Dello is female or not. If female . . . yes please!

  11. Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, [Virginia,] said he was “much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government.”

    If I were a firm that had behaved like a good little responsible firm, I’d be pretty fucking pissed right about now.

    Talk about no good deed goes unpunished. Sheesh.

  12. And the Democrats are supposed to be the “socialists”? I can’t see President Obama doing this type of forced government investment, can you?

  13. That can’t be right; they have a Satisfactory CRA rating.

    I can’t see President Obama doing this type of forced government investment, can you?

    These comments are both meant to be sarcastic, right?

  14. Depends on whether Dello is female or not. If female . . . yes please!

    Naga, you need to embrace your inner Frank Booth and fuck anything that moves.

  15. Epi,

    For the most part that is true. The corollary being that the skank in question be female.

  16. GMMD,

    My comment was. It was intended of sarcastic mockery of a certain breed of dumbass who have found a new way of saying something very old over the course of the past month.

    Now I’m worried they might not get it.

  17. I didn’t see much MSM time devoted to anyone opposing the bailout

    And you won’t. Our vaunted free press (present site exempted) is culpable in their negligence. Whether through ignorance or malice, they are willing accomplices in this nation’s inexorable march toward socialism. Not to worry, though. Most Americans approve of it. The biggest gang wins.

  18. For the most part that is true. The corollary being that the skank in question be female.

    Dude, you could double your action. Maybe you just need something to inhale, like nitrous.

  19. SIV wrote:

    Reportedly, the Wells Fargo CEO objected to the State investment yesterday.Paulsen told him he didn’t have a choice.

    None of the banks were forced to take the money. From an article in today’s WSJ:

    After Mr. Kovacevich voiced his concerns, Mr. Paulson described the deal starkly. He told the Wells Fargo chairman he could accept the government’s money or risk going without the infusion. If the company found it needed capital later and Mr. Kovacevich couldn’t raise money privately, Mr. Paulson promised the government wouldn’t be so generous the second time around.

    So apparently they had a choice. A risky choice, but a choice nonetheless.

    I currently have an account at Wells Fargo and I’m not very happy about this. I’d prefer to keep my money with a bank whose CEO turned down the offer and told Paulson to kiss his ass.

  20. Most Americans approve of it.

    Are you sure about that?
    Most didn’t approve of the bailout.

  21. SWIM did inhale 600 whip cream chargers over 24 hours. SWIM traveled back in time to beat SWIMself up when SWIM was five years old. SWIM will never be the same.

  22. Episiarch,

    I have no use for the additional “action”. Inhale something? Are you flirting with me? Cuz this is a battle you cannot win. I’m not gonna end up a notch on your bedpost.

  23. MTexan,


    “It was a take it or take it offer,” said one person who was briefed on the meeting, speaking on condition of anonymity because the discussions were private. “Everyone knew there was only one answer.”

    I don’t think we know what threats were made. If a solvent institution was put in a position in which they couldn’t compete w/o taking the deal it wasn’t “voluntary”.

  24. “He told the Wells Fargo chairman he could accept the government’s money or risk going without the infusion. If the company found it needed capital later and Mr. Kovacevich couldn’t raise money privately, Mr. Paulson promised the government wouldn’t be so generous the second time around.”

    some choice. what a freaking joke.

  25. Just moved some more cash into stocks.
    Everything is on sale! Freaking Philip Morris International has a P/E less than 1!
    Pfizer’s dividend is almost 8 percent!
    Blood in the streets. Ahhh. It smells like victory.

  26. I have no use for the additional “action”. Inhale something? Are you flirting with me? Cuz this is a battle you cannot win. I’m not gonna end up a notch on your bedpost.

    Naga, don’t bristle. Suggesting you go bi–for your sake–is not an affront to your masculinity. Now, as for being a notch on my bedpost, you already are. Don’t accept drinks from strangers, dude!

  27. If you don’t take the money, and another bank does, won’t that bank get a competitive advantage? Both in getting the cash injection and in being a “special” bank in the eyes of the regulator and the government as a whole?

  28. Citizen Nothing,

    If you go broke let me know what antique maps you want to sell.

  29. What? Stable banks!? I’ve been eating garbage for the past week to get a leg up on the coming financial apocalypse!

    Goddamn Paulson. I blame him for my forced freeganism!

  30. Epi,

    Thank you for thinking of me . . . for my own sake but no. I’ve thought real hard on this and I’ve decided I don’t roll that way. And I’m not bristling, Dennis. I think you are just upset I’m not stunned into gayness(real word?) by your “body”.

  31. “which were forced to accept the investment to help destigmatize the program in the eyes of other institutions”

    You do realize, of course, that this will be characterized as those institutions “voluntarily” running to the govt in times of trouble, and thus justification for whatever atrocities the left has in store later.

  32. If you go broke let me know what antique maps you want to sell.

    I personally believe that U.S. Americans are in recession that some people out there in our nation don’t have maps.

  33. Naga,

    “Some gay guys are twinks, and others are bears. This gay guy’s a bear. By the way we’re totally cool with that. To each his own.”

  34. Wait, I’m a little confused here. What’s a twink?

  35. I’ve got a bunch, SIV.
    But they’re the last to go, after the barn full of toilet paper.

  36. A twink is small and slender, like Mac.

  37. SIV,

    I don’t think we know what threats were made. If a solvent institution was put in a position in which they couldn’t compete w/o taking the deal it wasn’t “voluntary”.

    I certainly agree with you here. From a business perspective, turning down the offer puts you at a competitive disadvantage.

    From a philosophical perspective, I’d still prefer a bank that refused on principle, even if it puts them at a competitive disadvantage.

    For example, after the Kelo decision, BB&T CEO John Allison decided that BB&T would not finance private projects on land taken from private citizens by government entities using eminent domain. Even though refusing to finance such projects put BB&T at a competitive disadvantage.

    I imagine that the stakes are a lot higher with the current mess these days, though. If the only option for Wells was to take the offer or fail, then you’re right – it’s not too “voluntary”.

    Ideally, the government wouldn’t put banks in this kind of situation. Just let them fail.

  38. Thus saith Urban Dictionary:

    An attractive, boyish-looking, young gay man. The stereotypical twink is 18-22, slender with little or no body hair, often blonde, dresses in club wear even at 10:00 AM, and is not particularly intelligent. A twink is the gay answer to the blonde bimbo cheerleader.

  39. If you follow technical trading, the DOW did the “Death Cross” about midday today, meaning it is seeking another low. I agree there are great bargains out there – head to sector leaders and stay out of financials entirely – who can trust their earnings?

  40. What? Stable banks!? I’ve been eating garbage for the past week to get a leg up on the coming financial apocalypse!

    Goddamn Paulson. I blame him for my forced freeganism!

    JW, did you used to write about the freakin’ freegans at the Daily Sun?

  41. My father used to tell this joke when I was little:

    He would say, “Come the Revolution, everyone will eat strawberries and ice cream!”
    I would say, “But, I don’t like strawberries and ice cream.”
    Then he would reply, “Come the Revolution, EVERYONE will eat strawberries and ice cream!”

  42. Another way of looking at this is the Federal Government is attempting to keep institutions big. Or should I say…Big(tm). One of the core functions of the government is anti-trust activities and inspecting mergers to keep a ‘competitive’ economy– ie, keeping institutions from being “too big”. This bailout ensures such large institutions remain solvent, and thus remain Big(tm).

    Can this get any more fucked up?

  43. It is interesting that the far left and the far right in Congress voted against the bailout. It is almost always the case that whenever the far right and far left agree that something is bad, even if for entirely different reasons, and the mushy center thinks it is a good idea, the bill at issue is nothing but a giveaway to the ruling class. It is looking more and more like that was what this bill was. Yes, we are going to have a recession. Yes, our home values may not rise forever. But no way was this 1933. No way was spending 100s of billions to reward irrepsonsible behavior the right thing to do.

  44. Isn’t saying something is too big to fail just another way of saying it is too big? Had the big guys bit been allowed to go down, the smaller banks would have taken up the slack. The credit markets were not going to shut down for any significant length of time. What a crock of horseshit.

  45. “I certainly agree with you here. From a business perspective, turning down the offer puts you at a competitive disadvantage.”

    Yet another example of government punishing success and rewarding failure.

    Wells Fargo was one of the few large banks that was prudent enough to steer clear of most of the subprime mortgage mess and would have had a distinct competitve advantage over those other institutions who had foolishly kneecapped themselves by getting themselves involved with those toxic loans.

    Now the government is essentially forcibly kneecapping Wells Fargo to remove that advantage.

  46. I’m sorry, did I miss something? Don’t the banks’ shareholders have anything to say about this nonsense?

  47. “Now the government is essentially forcibly kneecapping Wells Fargo to remove that advantage”

    And if they help people pay their mortgages, they will reward people for taking irresponsible debt. In the same way it is difficult for Wells Fargo to compete with crooked competitors, it is also hard for honest people who take mortgages they can afford to compete for housing with people who take out irresponsible ones. So all of the people who took out BS mortgages they couldn’t pay are going to be rewarded by keeping their house and keeping some equity because Paulson is going to artificially prop up housing prices. All of the people who bought mortgages they could afford will be punished by paying taxes to support the deadbeats and the people who didn’t buy houses and lived within their means will be punished by both paying taxes and having housing continue to be beyond their means. It is just fucking great isn’t it?

  48. If a solvent institution was put in a position in which they couldn’t compete w/o taking the deal it wasn’t “voluntary”.

    The dirty secret is that W-F ain’t solvent (or are just barely so). Paulson knows it, the other 8 barely-solvent banks know it; W-F didn;t have the balls to vote against because they know they have a better than 50-50 chance of needing more capital – they have a lot of bad HELOC on the books and they just took on a pile of First Union garbage in the Wachovia takeover.

  49. “All of the people who bought mortgages they could afford will be punished by paying taxes to support the deadbeats and the people who didn’t buy houses and lived within their means will be punished by both paying taxes and having housing continue to be beyond their means. It is just fucking great isn’t it?”

    Yes indeedy, F*ing great.

    But punishing success and rewarding failure is something the government has been practicing for a long time – there’s nothing new about it.

    You think this is big bailout? Just wait util they start “means testing” social security.

    It’s coming.

  50. “What? take capital? no way, we don’t need that”

    wink wink, extends gunny sack, rakes in cash…

  51. some choice. what a freaking joke.

    The bigger joke is that Paulson’s replacement is one of the 9 shmucks in that meeting. And the W-F CEO discovered it was whittled to 8 in the same meeting.

  52. “You think this is big bailout? Just wait util they start “means testing” social security.”

    That is why I don’t have a 401K. I would rather spend the money now than save it so that the government will steal it later. If the government is going to subsidize irresponsible behavior, it might as well be mine.

  53. I can see where this is going.

    First the government will force the banks to accept the cash. Then they will twist their arms and say “lend, or else!”.
    Then, they will twist their arms and force them to reduce the principle on mortgages to irresponsible borrowers.
    Then they’ll make sure that the banks are forced to continue making loans to people who can’t afford them, so the banks will inevitably need another bailout, so the government will have an excuse to keep arm twisting them. It’s a vicious cycle.

  54. WHO BAILS OUT THE BAIL OUTERS?

  55. No, taxpayers ARE the bail outers!

  56. Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, [Virginia,] said he was “much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government.”

    Fun fact: Yes, that is the guy who was the previous US Senator in Sen. Obama’s seat in Illinois.

  57. Just think of this as the sump pump of the economy. Noisy, scary and a firmly entrenched sucking machine.

    Who pumps the sumps of our sump pumps?

  58. Why Didn’t The Market Drop Further?
    And in the ironic department:

    http://www.washingtonpost.com/wp-dyn/content/article/2008/10/14/AR2008101403378.html?sid=ST2008101500125&s_pos=

    “Community banking executives around the country responded with anger yesterday to the Bush administration’s strategy of investing $250 billion in financial firms, saying they don’t need the money, resent the intrusion and feel it’s unfair to rescue companies from their own mistakes….

    And in offices around the country, bankers simmered.

    Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, said he was “much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government.”

    Holy God. And This:
    “The government decided not to impose an explicit requirement that banks use their taxpayer dollars to increase lending. But regulators said they will watch banks closely. They also noted that banks have less reason to hoard money now that they can borrow more easily. Most important, however, they said, banks want to make money.”

    Of course not. Why have a plan that makes sense.

    Also yesterday, the Federal Deposit Insurance Corp. said it will create, essentially, two new insurance programs.

    “The basic insurance program still guarantees all bank deposits up to $250,000. A new supplemental program guarantees all deposits above $250,000 in accounts that don’t pay interest. The program basically covers accounts used by small businesses.
    Some European governments had already guaranteed deposits, creating a competitive advantage for banks in those countries. ”

    Now we know why they did this. Finally:

    “Bair acknowledged that the new guarantees shelter banks from the immediate consequences of misbehavior because depositors and investors have no incentive to remove their money from an institution if they know that the government stands behind it.

    But Bair said the government’s first priority was to stabilize the industry.

    “The risks of moral hazard were simply outweighed by the need to act and act dramatically and act quickly,” Bair said.”

    I don’t know whether to laugh or cry.

    So, let’s see:

    1) Small banks don’t want TARP and resent it.

    2) We’re not forcing TARP recipients to loan money out, thereby obviating it as a credit stimulus program.

    3) We need to guarantee deposits because those socialist Europeans did it.

    4) There are no immediate disincentives to reckless behavior.

    5) We given up on any notion of implicit or explicit guarantees.

    Your government’s dollars at work.

    TARP is an awful mess.

  59. For all you investors in “hard goods” out there, there’s a thriving market in legal automatic weapons out there or two.

  60. An offer they couldn’t refuse?

    Forced to accept seems inaccurate.

    Enticed?

    Regarding competition…

    Doesn’t the infusion come with enough encumbrances to negate that advantage? Isn’t that why there was a need to entice?

    The wise institutions already have the advantage of not being saddled with bad debt.

    Done properly the infusion should be similar to allowing an amputee to use a prosthetic limb in a foot race, but not similar to letting him use a rocket sled.

  61. Now the government is essentially forcibly kneecapping Wells Fargo to remove that advantage.

    And the Trees are all kept equal/
    By Hatchet, Axe, and Saw.

  62. Infusion… interesting turn of phrase.

    I empty my bank account spending it all on hookers and blow. Then my neighbor is forced to give me thousands of dollars in a ‘rescue’ plan because, we’re all living in the same neighborhood, and foreclosures are, you know, bad for property values. And I get compared to an unfortunate amputee with a prosthetic limb.

  63. Paul,

    Your behavior demonstrates that you have a recognized addiction disorder.

    Amputee/addict, whatever.

    Your impairment still puts you at a disadvantage and your failures in life have the potential to damage the welfare of your neighbors.

    ;^)

  64. It is in the self-interest of Paul’s neighbors to help him dig himself out of the whole that he has dug for himself…once he’s on level ground, he’s on his own.

    The help has strings attached that assure he doesn’t abuse it.

  65. Disclaimer: I am not convinced that this plan is a good idea…I am just not sure the fed giving people money with a heavy dose of strings attached is the same thing as rewarding failure. And I am positive that there is a difference between force and persuasion.

  66. Yeah, the people saying Wells Fargo was forced into taking the deal appear to be rather overstating the case.

    The people being “forced” are the taxpayers who don’t agree our money should be used this way.

    And whether the government really has the scientific ability to make sure the bailout is just enough but not too much would seem dubious.

  67. Hmm, billions of dollars with… I hesitate to say it.. ‘strings attached’.

    There are probably a lot of small business owners who overexpanded, made faulty decisions etc., that would love to get literally truckloads of money for a few ‘strings’ attached.

  68. I currently have an account at Wells Fargo and I’m not very happy about this. I’d prefer to keep my money with a bank whose CEO turned down the offer and told Paulson to kiss his ass.

    So principled!

  69. (Apparently, it’s <blockquote>, not <block>. Grrr.)

  70. Eidentally I am a moron, I wont make the same mistake next time.

  71. Whoa.

    We’ve finally found an example of libertarians willing to acknowledge that facing economic ruin can amount to coercion, and complicate the simplistic “forced/voluntary” dualism.

    Gee, you think that might apply to a secretary who might lose her job, too?

  72. My worry is that the “strings attached” will combine the worst of both possibilities for the bailout — firms that could use the help won’t take it because of these “strings”, and for the big well-connected firms, this is just a tasty chunk of credit, and the strings don’t actually connect to anything.

    Note that the preferred stock doesn’t convey any voting rights, and the govt. doesn’t get a seat on the board of the banks. It’s good if you don’t like government running the banks, but it certainly seems likely to me that at least some bank CEO’s will take this bailout as a fresh cash infusion and do whatever the heck they want with it, regardless of what Uncle Sam or Hank Paulson had in mind.

    In which case we’ll be here 3 months from now, the banks will have eaten Hank Paulson’s tasty snack and will be wondering what the new Treasury Secretary has in the fridge.

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