Wall Street reforms

[Trom]

@LonghornDave

Please point out a single case of a big bank that has received TARP funds that has acquired a failed bank in 2009 using those TARP funds.

Why does the size of the TARP recipient buying the failed bank matter?

Here are banks that received TARP money and have then gone on to assume failed banks:

Failed Bank (FB): Corus - IL
TARP-Receiving “Assuming Institution” (TRAI): MB Financial -IL

FB: Warren Bank -OH
TRAI: Huntington Bank - OH

FB: Irwin Union Bank - KY
TRAI: First Financial Service Corp - KY

FB: Vantus Bank - IA
TRAI: Great Southern - MO

FB: InBank - IL
TRAI: MB Financial - IL

FB: Bradford Bank - MD
TRAI: M&T Bank - NY

FB: First Coweta Bank - GA
TRAI: United Bank - GA

FB: ebank - GA
TRAI: Stearns Bank - MN

FB: Dwelling House Savings and Loan - PA
TRAI: PNC - PA

FB: Community Nat. Bank of Sarasota - FL
TRAI: Stearns Bank - MN

FB: First State Bank - FL
TRAI: Stearns Bank - MN

FB: Peoples Community - OH
TRAI: First Financial - OH

FB: Founders Bank - IL
TRAI: PrivateBank - IL

FB: Mirae Bank - CA
TRAI: Wilshire - CA

FB: Horizon Bank - MN
TRAI: Stearns Bank - MN

FB: Southern Community - GA
TRAI: United Community - GA

FB: Strategic Capital - IL
TRAI: Midlands States - IL

FB: America West - UT
TRAI: Cache Valley - UT

FB: TeamBank - KS
TRAI: Great Southern - GA

FB: Heritage Community - IL
TRAI: MB Financial - IL

FB: County Bank - CA
TRAI: Westamerica - CA

FB: First Bank Financial Services - GA
TRAI: Regions Bank - AL

FB: First Centennial - CA
TRAI: First California - CA

FB: Bank of Clark County - WA
TRAI: Umpqua - OR

Sources:
http://www.fdic.gov/bank/individual/failed/banklist.html

Bailout Tracker

I suspect you will counter that we can’t say for sure that the actual TARP money was involved in the purchase of the failed institutions. I would agree with that, not even Elizabeth Warren of the Congressional Oversight panel can account for where exactly the TARP funds went.

The ridiculous part of all this, in my eyes, is that the FDIC is giving banks that needed TARP bailouts due to their own negligence even MORE assets to control. How does this make sense?

(Sorry for the long post…couldn’t figure out a better way to format.)

[LonghornDave]

@Trom

Why does the size of the TARP recipient buying the failed bank matter?

It matters because what I was responding to was the following.

@gonzomax

we allowed Bank of America and other enormous banks to buy them up with TARP money.

@Trom

The ridiculous part of all this, in my eyes, is that the FDIC is giving banks that needed TARP bailouts due to their own negligence even MORE assets to control. How does this make sense?

It makes sense when you consider the fact that the vast majority of the banks that received TARP funds were in good financial condition and felt pressured to take funds. You had to be either in good financial condiition or be one of the “too big to fail” banks in order to receive TARP funds.

[Trom]

@LonghornDave

It makes sense when you consider the fact that the vast majority of the banks that received TARP funds were in good financial condition and felt pressured to take funds. You had to be either in good financial condiition or be one of the “too big to fail” banks in order to receive TARP funds.

I guess I’m just cynical. I still believe that nobody knows what is actually out there in “Legacy Asset Land.” As such, that tilts my opinion towards the belief that many “healthy” banks are far from it.

Yes, the Capital Purchase Program was sold as a program that would stimulate lending by financially sound institutions. By what method would the good institutions be sorted from the bad? The entire process was opaque. The State of Alabama’s letter (pdf) to the House Financial Services Committee seems to be representative of at least some of mess. Banks submitted an application that went through to the FDIC, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Federal Reserve. Lastly, it went to the Treasury for the stamp of approval. They claimed to have an objective process, yet in OneUnited’s case, for some reason, Maxine Water’s and Barney Frank’s opinions and interests were inserted into the completely objective determination method. OneUnited has since missed their dividend payment payable to the US Government. Given that 34 of the companies in “good financial condition” that received TARP money also last month missed their dividend payments…
Like I said, I’ve grown cynical. I have little faith that the process by which the US Government allocated capital was carried in a fair or proper manner.

Anyway, back to the other topic…

@New York Times

A review of investor presentations and conference calls by executives of some two dozen banks around the country found that few cited lending as a priority. An overwhelming majority saw the bailout program as a no-strings-attached windfall that could be used to pay down debt, acquire other businesses or invest for the future.

http://www.nytimes.com/2009/01/18/business/18bank.html?pagewanted=1&_r=1

:mad:

[Voyager]

@LonghornDave

Yea, things really worked great for banks in the late '80s.

Are you implying that happened from a surfeit of regulation?
Glass-Steagall was not relevant to that type of deregulation, of course.
It’s really very simple. If an increase in risk increases returns, in the short term, some one will do it. Since they are now outcompeting a bank taking less risk, there is a very strong incentive for them to match the risk, or else see their stock price go down. Repeat until there is one card too many on the house, and the whole thing collapses. Maybe a very small number of those responsible will face a penalty, if they go past risk to fraud, but for the most part the managers who caused the collapse retire with the millions they made from the high profit days.

Any reason why this isn’t the way it happens? Or do you think (like Greenspan) the old Invisible Hand will take care of everything?

[MOIDALIZE]

Excellent Bill Moyers’ interview with Simon Johnson, formerly of the IMF, and Rep. Marcy Kaptur (D-Ohio), regarding the banks.

http://www.pbs.org/moyers/journal/10092009/watch.html

[Voyager]

@gonzomax

Money Morning - We Make Investing Profitable TARP has allowed banks to buy other failing banks and financial institutions. They also allowed non banking financial institutions to buy up a bank and qualify for TARP funds. It was grand theft by the wealthy and powerful.

Are you aware that before TARP when a bank failed the FDIC took it over, cleaned it up, and sold it to another bank? Would you rather the customers of the bank have to move, or that there is a bidding war for the loans? Failing banks getting bought by other banks is the only sensible strategy.

[Voyager]

@LonghornDave

I

It makes sense when you consider the fact that the vast majority of the banks that received TARP funds were in good financial condition and felt pressured to take funds. You had to be either in good financial condiition or be one of the “too big to fail” banks in order to receive TARP funds.

The reason they were pressured to take funds was so that taking TARP money wasn’t a mark of Cain, causing investors to run even further from the banks. I’m not saying it was a good idea, but it wasn’t totally random.

[Dick_Dastardly]

@LonghornDave

Yea, things really worked great for banks in the late '80s.

Because Reagan deregulated the Savings and Loans firms. The fact is that the Depression-era legislation worked magnificently and every time it’s been compromised it’s caused enormous consequences, yet there sre still people who for some looney tune reason still think that regulating the financial industry is a bad thing.

[gonzomax]

@Voyager

Are you aware that before TARP when a bank failed the FDIC took it over, cleaned it up, and sold it to another bank? Would you rather the customers of the bank have to move, or that there is a bidding war for the loans? Failing banks getting bought by other banks is the only sensible strategy.

The sensible strategy would be to nationalize them. They were thieves before and now they are bigger thieves. We opened the treasury up to people who destroyed the finances of the whole fucking globe. But now they will do right? How can you believe that? We know what they are. The bankers are already back to their risky behavior and they are also suppressing loans. They are jacking the rates up on credit cards and are hitting customers for all kinds of charges. can you explain how that will help the general economy out? They feel no responsibility for the havoc they caused . We have to prosecute a bunch of them or just give up and admit we like being robbed.

[LonghornDave]

@Voyager

Are you implying that happened from a surfeit of regulation?
Glass-Steagall was not relevant to that type of deregulation, of course.
It’s really very simple. If an increase in risk increases returns, in the short term, some one will do it. Since they are now outcompeting a bank taking less risk, there is a very strong incentive for them to match the risk, or else see their stock price go down. Repeat until there is one card too many on the house, and the whole thing collapses. Maybe a very small number of those responsible will face a penalty, if they go past risk to fraud, but for the most part the managers who caused the collapse retire with the millions they made from the high profit days.

Any reason why this isn’t the way it happens? Or do you think (like Greenspan) the old Invisible Hand will take care of everything?

Did you just make up an argument in your head? You said things went along fine for decades. My obvious statement back was that it didn’t go fine for decades since there was a major banking collapse in the late '80s and early '90s. There was no opinion or implication give in my post.

I’ll expand now though. The primary cause for both the banking problem in the '80s and the one now was lending too much money in the real estate market. That is the primary cause for both collapses. Neither was primarily driven by de-regulation in my opinion.

[LonghornDave]

@Voyager

The reason they were pressured to take funds was so that taking TARP money wasn’t a mark of Cain, causing investors to run even further from the banks. I’m not saying it was a good idea, but it wasn’t totally random.

I completely understand that and nowhere did I imply that it was a random. It just bothers me when uninformed people act like every bank that received TARP money was bailed out since that isn’t even close to accurate. There are banks that were forced to take the money and at the first chance of being allowed to pay it back they did, with dividends and buying back warrants. That was only a few months later. It bothers me when people say that company was bailed out.

[LonghornDave]

@Dick_Dastardly

Because Reagan deregulated the Savings and Loans firms. The fact is that the Depression-era legislation worked magnificently and every time it’s been compromised it’s caused enormous consequences, yet there sre still people who for some looney tune reason still think that regulating the financial industry is a bad thing.

First of all, any de-regulation would have been passed by a democratically controlled congress. Second, solely blaming de-regulation is a sound bite reason not a correct one. If you don’t think it had anything to do with a complete collapse in the real estate market then I don’t know what to tell you.

[Trom]

@LonghornDave

I completely understand that and nowhere did I imply that it was a random. It just bothers me when uninformed people act like every bank that received TARP money was bailed out since that isn’t even close to accurate. There are banks that were forced to take the money and at the first chance of being allowed to pay it back they did, with dividends and buying back warrants. That was only a few months later. It bothers me when people say that company was bailed out.

LonghornDave, do you have any thoughts on my post regarding the muddied and opaque process by which banks were deemed worthy or unworthy of receiving TARP money?

[LonghornDave]

@gonzomax

The bankers are already back to their risky behavior and they are also suppressing loans.

Why don’t you re-read this and think if it makes any sense what-so-ever. So the banks are back to their risky behavior (presumedly over-lending) while at the same time not lending enough? That’s good solid reasoning, congratulations.

[MOIDALIZE]

@LonghornDave

First of all, any de-regulation would have been passed by a democratically controlled congress. Second, solely blaming de-regulation is a sound bite reason not a correct one. If you don’t think it had anything to do with a complete collapse in the real estate market then I don’t know what to tell you.

If not for deregulation, we wouldn’t have seen these enormous bets on housing. The collapse of the real estate market didn’t suddenly make these bets into a bad idea; it was a bad idea regardless. Blaming the collapse of the real estate market is like getting caught robbing a bank and arguing that it would have worked out fine if not for those pesky police.

There’s nothing good about a company like Goldman Sachs being able to reorganize themselves as a bank holding company and gaining access to the Fed’s lending window (or whatever the hell they did after they almost collapsed; who can keep track?).

[LonghornDave]

@Trom

LonghornDave, do you have any thoughts on my post regarding the muddied and opaque process by which banks were deemed worthy or unworthy of receiving TARP money?

I agree with you that it was politicized for certain banks. Considering the fact that it was supposed to be a plan to inject money into healthy banks, I agree that some banks probably should not have passed that litmus test. I recall reading about several instances where one bank was passed over despite a worse off bank in the same geographic region receiving funds.

Obviously a big part of the problem is the fact that there is crazy regulation governing commercial banks and thrifts (collectively, “banks”). One bank may be regulated by the OTS and another by the OCC. One bank is locally regulated while another is federally regulated. Since the first round of approval was by the direct regulator and that was different depending on how you were chartered, it wasn’t a level playing field.

That is why it makes sense to have a single regulator of banks and a single type of charter. I believe that the OCC would be the best considering everything the OTS touches seems to fall apart.

[LonghornDave]

@MOIDALIZE

If not for deregulation, we wouldn’t have seen these enormous bets on housing. The collapse of the real estate market didn’t suddenly make these bets into a bad idea; it was a bad idea regardless. Blaming the collapse of the real estate market is like getting caught robbing a bank and arguing that it would have worked out fine if not for those pesky police.

Whereas I think that there were plenty of banks that lent consistent advance rates using qualified appraisers that have been absolutely hammered because of a massive decline in collateral value.

Let me ask you, did banks screw up by lending to natural gas companies over the past several years because now there are a rash of troubled loans and bankruptcies in that sector? I tend to think that natural gas reserve based loans have proven to be a very safe loan and the lending methodologies didn’t really change despite the run up in prices. Now, however, banks are loaded with classified loans and chargeoffs and loan loss reserves on those types of loans. I believe it is because of a massive collapse in prices. What de-regulation are you going to blame it on?

@MOIDALIZE

There’s nothing good about a company like Goldman Sachs being able to reorganize themselves as a bank holding company and gaining access to the Fed’s lending window (or whatever the hell they did after they almost collapsed; who can keep track?).

Please see the following topic which addresses this and many other misconceptions about Goldman Sachs: Goldman Sachs was not bailed out

[Trom]

@MOIDALIZE

If not for deregulation, we wouldn’t have seen these enormous bets on housing. The collapse of the real estate market didn’t suddenly make these bets into a bad idea; it was a bad idea regardless. Blaming the collapse of the real estate market is like getting caught robbing a bank and arguing that it would have worked out fine if not for those pesky police.

There’s nothing good about a company like Goldman Sachs being able to reorganize themselves as a bank holding company and gaining access to the Fed’s lending window (or whatever the hell they did after they almost collapsed; who can keep track?).

In order to do away with the criticism that they were engaging in practices unfitting of a bank holding company with US taxpayers’ backing, Goldman has now become a financial holding company with the implicit backing of taxpayers.

[MOIDALIZE]

@LonghornDave

Whereas I think that there were plenty of banks that lent consistent advance rates using qualified appraisers that have been absolutely hammered because of a massive decline in collateral value.

Let me ask you, did banks screw up by lending to natural gas companies over the past several years because now there are a rash of troubled loans and bankruptcies in that sector? I tend to think that natural gas reserve based loans have proven to be a very safe loan and the lending methodologies didn’t really change despite the run up in prices. Now, however, banks are loaded with classified loans and chargeoffs and loan loss reserves on those types of loans. I believe it is because of a massive collapse in prices. What de-regulation are you going to blame it on?

I have no idea whether these natural gas company loans were a mistake. Were these loans as preposterously over-leveraged as the mortgage loans? Were they sliced and diced and repackaged into arcane securities that nobody knew the true value of? Did the parties making the loans receive large bonuses for acheiving short term gains? Were the losses ultimately thrust onto the taxpayer? Just pointing out loans made to a distressed sector of the economy doesn’t tell me anything about the manner of the investments made and whether they made sense.

@LonghornDave

Please see the following topic which addresses this and many other misconceptions about Goldman Sachs: Goldman Sachs was not bailed out

Yeah, I remember this thread. I seem to recall your obstinancy as well. Your narrow, personal definition of what a “bailout” is doesn’t make it a misconception.

[LonghornDave]

@Trom

In order to do away with the criticism that they were engaging in practices unfitting of a bank holding company with US taxpayers’ backing, Goldman has now become a financial holding company with the implicit backing of taxpayers.

For informational purposes, here is the text from their 10K, which was filed on 1/27/09 announcing their intention.

@GS 10K

Activities

The BHC Act generally restricts us from engaging in business activities other than the business of banking and certain closely related activities. However, the BHC Act also grants a new bank holding company, such as Group Inc., two years from the date the entity becomes a bank holding company to comply with the restrictions on its activities imposed by the BHC Act with respect to any activities that it was engaged in when it became a bank holding company. We expect that this “grandfather” right will allow us to continue to conduct our business substantially as we have in the past until at least September 22, 2010. In addition, under the BHC Act, we can apply to the Federal Reserve Board for up to three one-year extensions.

Under the U.S. Gramm-Leach-Bliley Act of 1999 (GLB Act), an eligible bank holding company may elect to become a “financial holding company.” Financial holding companies may engage in a broader range of financial and related activities than are permissible for bank holding companies as long as they continue to meet the eligibility requirements for financial holding companies. These activities include underwriting, dealing and making markets in securities, insurance underwriting and making merchant banking investments in nonfinancial companies. In addition, the GLB Act also allows a company that was not a bank holding company and becomes a financial holding company after November 12, 1999 to continue to engage in certain commodities activities that are otherwise impermissible for bank holding companies if the company was engaged in any of these activities in the United States as of September 30, 1997 and if the assets held pursuant to these activities do not equal 5% or more of the consolidated assets of the bank holding company.

We intend to apply to elect to become a financial holding company under the GLB Act as soon as practicable. Our ability to achieve and maintain financial holding company status is dependent on a number of factors, including our U.S. depository institution subsidiaries continuing to qualify as “well capitalized” as described under “— Prompt Corrective Action” below. We do not believe that any activities that are material to our current or currently proposed business would be impermissible activities for us as a financial holding company.

As a bank holding company, Group Inc. is required to obtain prior Federal Reserve Board approval before directly or indirectly acquiring more than 5% of any class of voting shares of any unaffiliated depository institution. In addition, as a bank holding company, we may generally engage in banking and other financial activities abroad, including investing in and owning non-U.S. banks, if those activities and investments do not exceed certain limits and, in some cases, if we have obtained the prior approval of the Federal Reserve Board.

I did not see a filing that they had actually changed their status to a Financial Holding Company.