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Bailout Money Used for Exec Bonuses? - 10/26/2008 4:30:13 PM
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Pat-rebel_lady
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WASHINGTON - First, the $700 billion rescue for the economy was about buying devalued mortgage-backed securities from tottering banks to unclog frozen credit markets.
Then it was about using $250 billion of it to buy stakes in banks. The idea was that banks would use the money to start making loans again.
But reports surfaced that bankers might instead use the money to buy other banks, pay dividends, give employees a raise and executives a bonus, or just sit on it. Insurance companies now want a piece; maybe automakers, too, even though Congress has approved $25 billion in low-interest loans for them.
Three weeks after becoming law, and with the first dollar of the $700 billion yet to go out, officials are just beginning to talk about helping a few strapped homeowners keep the foreclosure wolf from the door.
As the crisis worsens, the government's reaction keeps changing. Lawmakers in both parties are starting to gripe that the bailout is turning out to be far different from what the Bush administration sold to Congress.
In buying equity stakes in banks, the Treasury has "deviated significantly from its original course," says Alabama Sen. Richard Shelby, the top Republican on the Senate Banking, Housing and Urban Affairs Committee. "We need to examine closely the reason for this change," said Shelby, who opposed the bailout.
The centerpiece of the Emergency Economic Stabilization Act is the "troubled asset relief program," or TARP for short. Critics note that tarps are used to cover things up. The money was to be devoted to buying "toxic" mortgage-backed securities whose value has fallen in lockstep with home prices.
But once European governments said they were going into the banking business, Treasury Secretary Henry Paulson followed suit and diverted $250 billion to buy stock in healthy banks to spur lending.
Bank executives hinted they might instead use it for acquisitions. Sen. Christopher Dodd, chairman of the Senate banking committee, said this development was "beyond troubling."
Sure enough, a day after Dodd, D-Conn., made the comment, the government confirmed that PNC Financial Services Group Inc. was approved to receive $7.7 billion in return for company stock. At the same time, PNC said it was acquiring National City Corp. for $5.58 billion.
"Although there will be some consolidation, that's not the driver behind this program," Paulson recently told PBS talk show host Charlie Rose. "The driver is to have our healthy banks be well-capitalized so that they can play the role they need to play for our country right now."
Other planned uses of the bailout money have lawmakers protesting, although it is only fair to note there is nothing in the law that they just wrote to prevent those uses.
Sen. Charles Schumer, D-N.Y. questioned allowing banks that accept bailout bucks to continue paying dividends on their common stock.
"There are far better uses of taxpayer dollars than continuing dividend payments to shareholders," he said.
Schumer, whose constituents include Wall Street bankers, said he also fears that they might stuff the money "under the proverbial mattress" rather than make loans.
Rest of story here
(highlighting mine)
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RE: Bailout Money Used for Exec Bonuses? - 10/26/2008 7:38:36 PM
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GroupW
Posts: 2864
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From: Up in the hills of Colorado (very BIG hills...)
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It's a bit misleading to say that banks are using the treasury's money to fund acquisitions. In the case of a troubled bank like National City, the treasury is essentially forcing the sale to PNC and then providing capital to PNC to ensure that the combined institution is economically sound.
The public funds are not being used to line shareholder pockets in those cases - instead, public funds are being used to avoid bank failures by forcing sales of the institutions to healthier banks.
As far as being used to fund dividend payouts or stock buybacks, those items are specifically prohibited by the terms of the preferred equity investment as well as by the language in the original bill.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Bailout Money Used for Exec Bonuses? - 11/6/2008 2:36:25 PM
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Row1
Posts: 247
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Palin spent 150,000 (private/not public) bucks on wardrobe, and you are worried about 700 billion (our tax dollars) disappearing?
where are your priorities?
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RE: Bailout Money Used for Exec Bonuses? - 11/7/2008 3:09:36 PM
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rockominal
Posts: 33
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From: Indiana
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quote:
ORIGINAL: Pat-rebel_lady
"There are far better uses of taxpayer dollars than continuing dividend payments to shareholders," he said.
Schumer, whose constituents include Wall Street bankers, said he also fears that they might stuff the money "under the proverbial mattress" rather than make loans.
Rest of story here
(highlighting mine)
Chucky Schumer certainly knows his ilk I guess. I'm also wondering about Obaama's buddies at Freddie Mac & Mae. Now that he's in, are they asking " you got our backs, right?"
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I might tell you the truth, or something pretty close to it. Jesus says, "I Am the Truth."
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RE: Bailout Money Used for Exec Bonuses? - 11/16/2008 11:54:48 AM
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Bettawrekonize
Posts: 1393
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quote:
ORIGINAL: GroupW
It's a bit misleading to say that banks are using the treasury's money to fund acquisitions..
I found this interesting
quote:
Nocera cites an employee-only conference call held October 17 by a top executive of JPMorgan Chase ... he obtained the call-in number and was able to listen to a recording of the proceedings, unbeknownst to the executive, whom he declines to name.
...
Asked by one of the participants whether the $25 billion in federal funding will “change our strategic lending policy,” the executive replies: “What we do think, it will help us to be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling.”
Referring to JPMorgan’s recent government-backed acquisition of two large competitors, the executive continues: “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.”
As Nocera notes: “Read that answer as many times as you want–you are not going to find a single word in there about making loans to help the American economy.”
Later in the conference call the same executive states, “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.”
The “Dirty Little Secret” Of the US Bank Bailout
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RE: Bailout Money Used for Exec Bonuses? - 11/17/2008 8:21:19 AM
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mapachito13
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quote:
ORIGINAL: Bettawrekonize
The “Dirty Little Secret” Of the US Bank Bailout
I found this section most interesting from this link:
"In a nationally televised speech delivered September 24, in advance of the congressional vote on the bailout plan, Bush said it would “help American consumers and businessmen get credit to meet their daily needs and create jobs.” If the bailout was not passed, he warned, “More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account…. More businesses would close their doors, and millions of Americans could lose their jobs … ultimately, our country could experience a long and painful recession.”
One month later, the bailout has been enacted, and all of the dire developments–banks and businesses disappearing, the stock market plunging, unemployment skyrocketing–which the American people were told it would prevent are unfolding with accelerating speed."
Looks like Bush was head salesman for this rushed through package. It's amazing what speed the government can find almost a trillion dollars for the financial institutions and for education their pockets are empty!
Well, two letters in Bush's name are B and ....... 
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Peace Sells....But Who's Buying!
"I would argue that the most serious threat to the United States is not someone hiding in a cave in Pakistan or Afghanistan, but our own fiscal irresponsibility."-David Walker, fmr comptroller general of the US
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RE: Bailout Money Used for Exec Bonuses? - 11/17/2008 11:02:51 AM
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GroupW
Posts: 2864
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From: Up in the hills of Colorado (very BIG hills...)
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I don't know that anyone promised that the bailout would prevent a crisis, only that the crisis wouldn't unfold into a major financial meltdown in the banking system.
That part of the crisis was indeed averted. The banking system was completely locked up for several weeks in late September and early August. That system has indeed thawed out a bit in recent weeks and is beginning to work again - albeit very slowly. It will take some time before the real effects of the bailout have time to ripple through the system. I don't think it's proper to judge the impact of the bailout by looking at stock prices or the individual bankruptcies of a few companies that weren't particularly well managed or positioned for a downturn.
(I agree though that there are some serious needs that we somehow don't seem willing to fund appropriately.)
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Bailout Money Used for Exec Bonuses? - 11/17/2008 11:06:39 AM
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GroupW
Posts: 2864
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
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quote:
ORIGINAL: Bettawrekonize
quote:
ORIGINAL: GroupW
It's a bit misleading to say that banks are using the treasury's money to fund acquisitions..
I found this interesting
quote:
Nocera cites an employee-only conference call held October 17 by a top executive of JPMorgan Chase ... he obtained the call-in number and was able to listen to a recording of the proceedings, unbeknownst to the executive, whom he declines to name.
...
Asked by one of the participants whether the $25 billion in federal funding will “change our strategic lending policy,” the executive replies: “What we do think, it will help us to be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling.”
Referring to JPMorgan’s recent government-backed acquisition of two large competitors, the executive continues: “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.”
As Nocera notes: “Read that answer as many times as you want–you are not going to find a single word in there about making loans to help the American economy.”
Later in the conference call the same executive states, “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.”
The “Dirty Little Secret” Of the US Bank Bailout
I think the misleading part is that it's often portrayed as simply a give-away to banks without any real economic logic behind it. Providing acquisition capital to the remaining strong banks to acquire the weak ones' is a very efficient means of stabilizing the financial system. It's not just a giveaway so banks can go on an acquisition spree. The government has essentially provided both the means (preferred stock purchases in stronger companies) and the incentive (temporary repeal of section 382 of the tax code) to encourage strong banks to buy up their weaker competitors that are currently putting our financial system at risk. It takes much less cash to do it this way than to simply purchase bad mortgage assets.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Bailout Money Used for Exec Bonuses? - 11/17/2008 9:07:01 PM
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Bettawrekonize
Posts: 1393
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quote:
ORIGINAL: GroupW
quote:
ORIGINAL: GroupW
It's a bit misleading to say that banks are using the treasury's money to fund acquisitions..
...
I think the misleading part is that it's often portrayed as simply a give-away to banks without any real economic logic behind it.
Does the second quote say that it's not misleading to say that the banks are using the treasury's money to fund acquisitions? First you say that it's misleading to say that the banks are using the treasury's money to fund acquisitions. Then you seem to claim that it's not misleading to say such a thing but you are now trying to justify such a thing.
I think what's misleading is the position that everything the government and these banks do is in the best interest of the American people and that, everything they do, is justified (so long as it helps keep the status quo).
quote:
Providing acquisition capital to the remaining strong banks to acquire the weak ones' is a very efficient means of stabilizing the financial system.
It's an efficient means of destroying competition.
quote:
It's not just a giveaway so banks can go on an acquisition spree. The government has essentially provided both the means (preferred stock purchases in stronger companies) and the incentive (temporary repeal of section 382 of the tax code) to encourage strong banks to buy up their weaker competitors that are currently putting our financial system at risk.
First you claim that it's not a giveaway so they can go on an acquisition spree, then you claim it's to encourage strong banks to buy up competitors. Interesting.
If they were so strong, they wouldn't need governmental help to make such acquisitions. How are these "weaker" (or, rather, smaller) competitors such a risk to our financial system? I know, they're a risk in the same sense that competition is a risk to monopoly. They're a risk to the status quo. So, you're right, there is an economic logic behind it. After all, it doesn't seem to be the smaller banks taking the governments help. If smaller banks are such a risk, why is it that the bigger banks are the ones that are failing to the degree that they need governmental assistance?
< Message edited by Bettawrekonize -- 11/17/2008 9:34:39 PM >
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RE: Bailout Money Used for Exec Bonuses? - 11/17/2008 9:17:38 PM
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Bettawrekonize
Posts: 1393
Joined: 4/17/2005
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quote:
ORIGINAL: GroupW
It will take some time before the real effects of the bailout have time to ripple through the system.
Or, perhaps it will take some time before the free (or, now a days, not so free) market can correct the problems the bail out has caused. Entities should be allowed to fail, we don't need the government ensuring that no one can fail.
The free market has a tendency to correct itself, but it takes some time. If businesses go out of business, it takes some time for new businesses to take their place, new businesses that will produce more relevant products. You allege it will take some time for the bail out to fix things. Since it will take some time for things to be fixed regardless of whether you let market forces correct themselves or whether you create huge bail outs to try and keep the status quo (giving money to irresponsible people who can't handle it, otherwise, they won't need the money to begin with. Why should we give money to people who have a history of mismanaging it and expect them to correct the problems they caused), we might as well just let market forces correct themselves and let those who mismanage things be replaced by competitors who will manage things more effectively.
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RE: Bailout Money Used for Exec Bonuses? - 11/18/2008 10:20:55 PM
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GroupW
Posts: 2864
Joined: 11/16/2007
From: Up in the hills of Colorado (very BIG hills...)
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quote:
ORIGINAL: Bettawrekonize
quote:
ORIGINAL: GroupW
It will take some time before the real effects of the bailout have time to ripple through the system.
Or, perhaps it will take some time before the free (or, now a days, not so free) market can correct the problems the bail out has caused. Entities should be allowed to fail, we don't need the government ensuring that no one can fail.
The free market has a tendency to correct itself, but it takes some time. If businesses go out of business, it takes some time for new businesses to take their place, new businesses that will produce more relevant products. You allege it will take some time for the bail out to fix things. Since it will take some time for things to be fixed regardless of whether you let market forces correct themselves or whether you create huge bail outs to try and keep the status quo (giving money to irresponsible people who can't handle it, otherwise, they won't need the money to begin with. Why should we give money to people who have a history of mismanaging it and expect them to correct the problems they caused), we might as well just let market forces correct themselves and let those who mismanage things be replaced by competitors who will manage things more effectively.
The problem is that there is no market - free or otherwise - right now in any number of bank asset categories. I would agree with you if there were a functioning market. In the absence thereof, letting banks fail simply due to irrational levels of fear and paralysis doesn't seem like a productive long term economic policy.
_____________________________
“For every problem, there is a solution that is simple, elegant and wrong.” -H.L. Mencken
"Most people would rather die than think; in fact, they do so." -Bertrand Russell
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RE: Bailout Money Used for Exec Bonuses? - 11/18/2008 10:33:33 PM
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Bettawrekonize
Posts: 1393
Joined: 4/17/2005
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quote:
ORIGINAL: GroupW
The problem is that there is no market - free or otherwise - right now in any number of bank asset categories. I would agree with you if there were a functioning market.
If there is no market for a product, then why should the government spend money to fund something for which there is no market? If no one wants widgets (at the free market price), why should the government pay someone to produce widgets that no one wants? The government should have just left it up to the free market to take away those who mismanage money and give it to those who don't.
quote:
In the absence thereof, letting banks fail simply due to irrational levels of fear and paralysis doesn't seem like a productive long term economic policy.
Giving banks who can't manage money more money simply due to irrational levels of fear and paralysis doesn't seem like a productive long term economic policy. Wait, nevermind, the levels of fear and paralysis were a result of the fear that the free market might change the status quo and transfer money/status from rich executives and other rich special interest groups who mismanage money to those who don't.
< Message edited by Bettawrekonize -- 11/18/2008 10:58:13 PM >
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