Tuesday, September 16, 2008

You and I...as Bankers

You know...I always thought SOMEDAY it would be nice to be a banker...be on the OTHER side of the desk when it comes to borrowing or lending, begging and pleading. Historically it has most always been better to be a lender than a borrower...with laws and rights heavily on the lender's side if the borrower defaults.

That seems to have all changed now...and most of us find ourselves in the position of being lenders...without our consent. We the taxpayers of the USA are now funding some of the biggest loans ever recorded in the form of bailouts of huge financial companies as well as the auto industry and some other heavy hitters who have powerful lobbyists lining the pockets of our legislators and Presidential campaign funds. Here is a short list of the larger "loans" we Americans are making...

AIG Insurance Group: $85 BILLION from the Federal Reserve Bank of New York

Bear Stearns Investment Bank: $30 BILLION

Fannie Mae and Freddie Mac: $200 billion in preferred stock of these loss-plagued finance giants / whiz kids

So one has to ask how do a Federal Government and Reserve System, TRILLIONS of dollars in the red, offer or invest at these levels in private industries? This is like asking a minimum wage migrant worker to loan a few million to his employer. Again, no one seems to consult the accountants anymore before making such huge financial decisions...with YOUR money and mine.

So if we DIDN'T do this...what would happen? Well, they would probably have to go through the same process that most of us average citizens would be required to do...file for some form of bankruptcy, throw themselves at the mercy of the courts, and probably be gobbled up or dissected off to competitors. Regardless, they would have to take the fall and responsibility for their own risks and actions instead of asking all of us little guys to pick up the pieces and hand it back to "them".

And while we're in this "free for all" frenzy for government dollars, other industries are ponying up for their share as well. GM and Ford want $25 BILLION from the government (us) to pursue more competitive, fuel efficient vehicle production. What have they been doing the last 20 years or so? Have they set nothing aside from revenues for R&D or market needs analysis?

These current requests for "loans" make tame the other recent bailouts our government has performed, such as the $5 BILLION cash and $10 BILLION in loan guarantees we gave to airlines post 9/11. One wonders if a penny of those loans has been repaid yet, 7 years later.

Now, if we are to show our true mettle as bankers, we must look at how much money we are spending or lending on our Iraq War...reportedly $3 TRILLION or so. Who is signing on the line for that debt in addition to the 4000 or so American lives lost in the conflict? Has Iraq started shipping us their oil yet in payment? Have we started "buying American" when it comes to gas and oil purchases to fuel our military? Ah, no, I didn't think so. Instead we continue to line the pockets of our Arab enemies who are laughing all the way to the bank and borrowing from the Chinese who continue to grin while holding our "paper" and currency in their hands.

And now we have these "smooth politicians" running for office, members of our "bank board", who are telling us they are going to do MORE for us with LESS taxes...or through simple "redistribution". "Cooking the books" if you will.

Fellow bankers, it is time for us to reel in our free spending "executives and board members" and get a proper accounting of what is owed, how much is being paid, and how much if anything we have left on deposit to loan or bail out with. This election is a good time to start this process.

Just as an afterthought, I think every banker/taxpayer should receive a loan to cover all their debts BEFORE considering any other 3rd party loans. If the government wants to consolidate debt, they should consolidate ALL of us. After all, we OWN the bank…or at least we THOUGHT we did.


Bibiana said...

Ahora, ya saben los subordinados del Tio Sam, donde va a parar su platica que, Tio, les saca del bolsillito.

Va para cubrir las malas decisiones de los banqueros, gobiernos locos y demas.

Tio Sam, seguira vaciando los bolsillos ya casi vacios del pueblo norteamericano?
Que pasara?
Esperemos el nuevo capitulo de la nueva pelicula de terror que comenzara en noviembre...
Ojala no sea tan terrorifica como la actual... Ouch, que miedo.

Timothy said...

Hi Ed,

Theoretically I agree with you. The sub-prime mortgage crises was caused by a combination of corporate greed, an absurd cycle of debt, and the lack of government regulation. These financial institutions knew that all of these people were going to default on their loans, but were betting that house prices would rise giving them a net gain. In essence, they were using human misery to achieve their ends. They don't deserve any help, they are reaping what they sowed.

However, the Government and Federal Reserve recognise that this isn't just the free market "correcting" itself, it is much larger than that. It is the failure of a free market with minimal government regulation to achieve anything without imploding itself. You must consider the consequences of not bailing them out, and also that the Government has nationalised them. They aren't going to be run by the same people (I believe).

It'll be interesting to see whether the executives that ran these companies into the ground (with millions of Americans riding on their backs) will be given a golden parachute or left to crash and burn. If there is justice in the world, hopefully the latter.

edward said...

Hey Tim...some of these guys have already jumped and pulled the chord on their "golden parachute". Others are unbelievably still on the job with big paychecks. That's part of the problem with our USA Corporate America. Very little accountability to the stockholders...or in this case...TAXPAYERS.

Personally, I still think FREE MARKETS can do better than just implode and need minimal government intervention. Having to pay the price of their errors is the only way markets "learn". With all these current bailouts, I would suggest no one is learning much. Its like the rich kid who smashes up the new car his parents just gave him while "showing off" or drinking...only to have the parents replace his car and with stern shaking finger. This is all a "slap on the wrist" for these conglomerates, while they cover their loses from OUR hides. This is NOT what government is for in my eyes...nor what I contribute my taxfunds for.

Timothy said...

Hi again Ed,

It's a shame about the executives, such little accountability. I agree with you that after this financial crises the surviving financial institutions will learn not to accept the word of credit agencies, not to pay the people that sign up the loans by volume, and not to stake alot of money on the future trend of house prices. However, the largest driving force behind this crises is greed. Corporations will learn their lesson, and find a new way to express their greed, no matter the social or environmental cost.

edward said...

I agree that un bridled greed can and is causing some of this current crisis. But, it's not just the greed of "corporations". The whole system has participated in this...the greed of the "borrowers" who just have to have a newer, bigger house even if they can't pay for it. Should I or my government have to bail THEM out? The greed of lenders who make risky loans...higher "usury" interest to those who can least afford to pay. Should I or my government have to bailt THEM out. And corporate greed...these are just large groups of people like the other previous categories, who CORPORATELY enter into these business agreements. Surely I shouldn't have to bail THEM out. And finally, government leaders and entities who are so busy meeting with lobbiests and special interests in order to get re elected or line their own pockets...SURELY you dont want me bailing THEM out...or give them access to government treasuries.

This is a mess I dont think a government can fix. It will fall back to the people, and with simple enterprise and free markets over TIME we can correct all of these abuses. Everyone wants a quick fix for problems that have been building for generations. But SOMEBODY has to pay for these accesses...and it should be those who are GUILTY...not the innocent.