Archive for the ‘Banks’ Category

Smaller Banks Resist Federal Cash Infusions

By Binyamin Appelbaum
Washington Post Staff Writer
Wednesday, October 15, 2008; A01

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.

But regulators said some banks will be pressed to take the taxpayer dollars anyway. Others banks judged too sick to save will be allowed to fail.

The government also said yesterday that it will guarantee up to $1.4 trillion of private investment in banks. The combination of public and private investment is intended to refill coffers emptied by losses on real estate lending. With the additional money, the government expects, banks would be able to start making additional loans, boosting the economy.

President Bush, in introducing the plan, described the interventions as “limited and temporary.”

“These measures are not intended to take over the free market but to preserve it,” Bush said.

On Capitol Hill, lawmakers from both parties praised the plan and scrambled to take credit for writing provisions into the law passed almost two weeks ago that allowed the government to switch from buying bad loans to buying ownership stakes in banks.

On Wall Street, bank stocks soared even as the broader market stayed flat while investors grappled with economic concerns. The Dow Jones industrial average was down 0.82 percent, or 76.62 points, to close at 9310.99 one day after its largest percentage gain in more than half a century.

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.”

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.

In rolling out the program, Treasury said it would make the rest of the money available to banks that requested it. Officials said they expected thousands of banks to participate.

But both the American Bankers Association and the Independent Community Bankers of America said that they knew of few banks that planned to participate.

“I’m not sure we’ve heard from any that want to participate,” said Karen Thomas, vice president for government relations at the community bankers group, which represents about 5,000 banks. “That said, if any community banks do enroll, we anticipate it will be just a small minority.”

Federal regulators said they did expect some banks to volunteer, though none stepped forward yesterday. But they added that they would not rely on volunteers. Treasury will set standards for deciding which banks can be helped, and the regulatory agencies will triage the banks they oversee: The institutions faring best and worst will not receive investments. The institutions in the middle, whose fortunes could be improved by putting a little more money in the bank, will be pushed to accept the money from the government.

“We will encourage institutions to apply,” said John C. Dugan, the comptroller of the currency, who oversees most of the nation’s largest banks.

In return for its investments, Treasury will receive preferred shares of bank stock that pay 5 percent interest for up to five years. After that, if the companies haven’t repaid the government’s initial investment, the interest rate goes up to 9 percent.

Participating banks cannot increase the dividends they pay to shareholders without federal permission, they must accept some limitations on compensation for their executives, and Paulson said the government would press companies to limit mortgage foreclosures.

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.

“And the way that banks make money is by lending,” Dugan said.

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. Banking regulators also were concerned that small businesses were transferring deposits from community banks to larger institutions perceived as less likely to fail. Finally, small businesses contributed to the failure of Washington Mutual and the collapse of Wachovia by pulling uninsured deposits from those banks.

The FDIC estimates that this new guarantee could cover up to $500 billion in deposits. Banks that sign up for the insurance — and bankers agree that everyone will participate, for fear of ceding an advantage to rivals — will pay a premium of 10 cents on every $100 in deposits.

The combination of the existing and new guarantees will cover about 80 percent of the $7 trillion in deposits at the nation’s banks. The bulk of the uninsured deposits are held in interest-bearing accounts, such as certificates of deposit, that tend to be marketed and regarded as investment products.

Sheila C. Bair, chairman of the FDIC, said the agency considered guaranteeing all bank deposits but decided that any potential benefit was outweighed by the risk that a guarantee on interest-bearing accounts would attract a huge inflow of deposits currently held in money-market mutual funds.

“We’re trying not to stabilize one part” of the financial system “and destabilize another part,” she said.

Separately, the FDIC is creating an insurance program to encourage investment in banks by guaranteeing that investors won’t lose money. Participating banks will pay the FDIC a fee of 75 cents on each $100 in debt that they sell to investors. The FDIC will guarantee through June 2012 the debt issued by participating banks before the end of June 2009. If the bank goes bankrupt, or defaults on its debt, the FDIC will pay the investors.

To prevent banks from running up massive debts on the government’s tab, the program limits banks to a 25 percent increase from their current level of borrowing. The FDIC estimates that the maximum amount of debt that banks could issue under the program is about $1.4 trillion.

Bair also said that the FDIC may refuse to guarantee debt issued by banks with financial problems, though she declined to discuss specific criteria.

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.

Dugan offered a slightly different perspective.

“It just means we’ve lost one tool and we’re going to have make sure that we compensate,” he said.

Staff writers Paul Kane, Lori Montgomery and Peter Whoriskey contributed to this report.

In an e-mail received tonight –

Ladies and Gentlemen,

I propose to demonstrate that in accordance with Constitutional Law the Senate of the United States of America did tonight perpetrate an unlawful and illegal act to abrogate the right of citizens of the United States to vote as guaranteed in Article 15 Clause I of the Constitution. The Congress has revealed itself, our Constitution cannot be interpreted, as it took over ten years to pass and is written in the plain language which can be amended but not abridged. Currently, the United States Senators who voted yes to an amendment of House Resolution 1424 defeated in the house, never sent to the Senate, and overwhelmingly not approved by the constituency is an act of authority made “Under Color of Law”, a crime against the country – “Under Color of Representative Authority” – not condoned in title 42 and publishable as a treasonous offense and any such law is null and of no effect.

In accordance with Article I Section no money shall be drawn from the Treasury but in Consequence of Appropriations made by law under Article I Section 9 of the Constitution. Unless they have the appropriation in hand an identified they cannot draw from the Treasury.

Additionally, each member of the Senate voting yes on this alleged Bill did in fact, with full knowledge execute an illegal act under “Color of Law” – to pass as piece of revenue legislation by amendment with full knowledge that the Bill had been defeated in the House of Representatives just two days earlier. They have complete legal understanding that only a Bill that has been properly submitted by first receiving a majority of votes in the House of Representatives could be amended and passed by the Senate. This unbelievable act of the Senate even attempts to circumvent Article I Section 7 of the Constitution, the “Origination Clause.”

Further, the yeah votes “Under Color of Representation” denied and deprived the American citizen of constitutional rights under the 14th Amendment Section 1 and the 19th Amendment Clause I which collectively protect all right reserved to the citizens and rights not to be denied or abridged which are guaranteed under Article 9 of the Constitution. These in the Congress of the United States are bound by oath under Article 6 to support the Constitution and any act not supported in the constitution is a felony lawfully considered void and of no effect.

However, we can see the silver lining in this egregious act of lawlessness. These criminals in the Senate who signed to pass this bill have a responsibility to understand the procedural requirements necessary to pass such an amendment. House Resolution 1424 is an Amendment. Clearly it is labeled as an amendment. Constitutional procedure dictates that you can Amend a Bill that has been passed. You cannot Amend a Bill which failed to pass and was therefore not properly submitted. These people have declared themselves as traitors before God and the Citizens of this country. They have attempted to sell out this country to the public corporations by assuming their private debt without the consent of the Citizens of this country. Article 15 Section 1 of the Constitution states: “The right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of race, color, or previous condition of servitude.” The rights of the citizens of this country to vote on this issue has clearly been abridged by this egregious act of the Senate.

To further state my interpretation of this act of the Senate, I refer to Amendment 14 Section 4 of the Constitution: “The validity of the public debt of the United States, authorized by law shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.”

I ask each of you to send this information to your representatives so that they can understand that their constituents will not tolerate this unlawful act and will seek to unseat every single Senator who voted to pass this fraudulent bill.

Political Leaders and Pundits Are Clueless About Bailout Rejection

By Richard C. Cook

SEPTEMBER 30, 2008­ Stephen Pearlstein is the Washington Post’s Pulitzer Prize-winning business columnist. In print and as a TV talking head­ – like on Chris Matthews’ Hardball late last week­ – Pearlstein is one of the foremost media cheerleaders for the $700 billion Wall Street bailout bill.

Or should we call it the Bush-Paulson-McCain-Obama-Pelosi-Reid-Dodd-Frank Wall Street bailout bill?

Nancy Pelosi and the rest of the leadership of the Democratic majority in Congress have become the indispensable partners in Bush administration travesties. First it was funding for the Iraq War. Now it’s lavishing rewards on the Wall Street “Masters of the Universe,” who, coincidentally, have been the financial mainstay of the Democratic Party since the Clinton years.

The TV networks are filled this morning with commentators who are sneering about how a majority of congresspeople voted to save their political butts in the face of the upcoming congressional elections. Political expediency, say the financier-owned media, trumped principle, when the House defeated the bailout bill yesterday by a vote in which 67 percent of the Republicans and 60 percent of the Democrats voted “No.”

The “principle” in this case is that of the loaded gun which Wall Street is holding to Main Street’s head. “Bail us out or no more loans,” Wall Street says in this alleyway mugging. And no more loans seemingly would be a disaster, because for the last quarter century it’s primarily been borrowed money Main Street has been living on.

But maybe Main Street is willing to call Wall Street’s bluff­on principle.

Here’s where Pearlstein enters the picture. His column in the Post this morning is as condescending as it can be. The title? “They Just Don’t Get It.”

Pearlstein writes: “Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system.”

Here’s what Pearlstein doesn’t get: The only reason there has been economic growth in the last seven years has been due to the housing bubble the Bush administration and Federal Reserve chairman Alan Greenspan created to get us out of the crash of the dot.com bubble in 2000-2001.

The reason these bubbles have been needed is that the United States over the last generation gave away millions of its good manufacturing jobs to foreign nations in order to further the greed of global finance capitalism. So the only way people have been able to live has been through credit bubbles that have the added disadvantage of inflating the prices of assets, including their homes. This is another benefit of the housing bubble: For a home that once cost $120,000, a family is paying a $300,000 mortgage. If they want to sell, they would be lucky to get $200,000, less brokers’ and bankers’ fees.

Pearlstein again: “Politicians worry less about preventing a financial meltdown than about ideology, partisan posturing and teaching people a lesson. Financiers have yet to own up publicly to their own greed, arrogance and incompetence. And leaders of foreign governments still think that this is an American problem and that they have no need to mount similar rescue efforts in their own countries.”

To call what a majority of the House of Representatives did yesterday in voting down the bailout an action based on “ideology, partisan posturing and teaching people a lesson” is a slur on American democracy. It shows what we already know: the Washington Post is really a house organ of the financial elite. And in dissing what is really part of a widespread populist uprising against financial abuses which have produced a condition approaching debt slavery for a majority of the U.S. population, Pearlstein shows a lack of respect that is typical, though appalling.

His prescription? “And they will come around, reluctantly, to the understanding that the only way to get out of these situations is to have governments all around the world borrow gobs of money and effectively nationalize large swaths of the financial system so it can be restructured, recapitalized, reformed and returned to private ownership once the crisis has passed and the economy has gotten back on its feet.”

In other words, Pearlstein is really a Keynesian. Governments need to “borrow gobs of money and effectively nationalize large swaths of the financial system.” This means trillions added to the national debt.

But in the point about nationalization there is a glimmer of truth, though not the way Pearlstein means it. For he is wrong in thinking that this particular bailout bill which rewards years of greed, criminality, and government collusion in private banking swindles is the way to proceed. Neither is it right for the government to administer bad bankers’ debts while already the big banks that leveraged the terrible investment decisions­ – Citibank, the Bank of America, and J.P. Morgan Chase – ­are getting off scot-free and adding to their empires by gobbling up the small fry.

What then should be done?

Here I would like to turn to a proposal by a man I have met and respect. His name is Darrell Castle, and he is the 2008 candidate for vice-president of the Constitution Party. Castle has spent the last year traveling around the country meeting people on Main Street and listening to what they have to say.

This is what Castle proposes in the Constitution Party’s latest newsletter:

“The Federal Reserve Banks should be seized by Congress under Article 1 Section 8 of the Constitution. The FED banks could survive as clearinghouse banks, but the Federal Reserve that has robbed the American people for 100 years would cease to exist. The debt owed by the American people to the FED banks would be discharged in bankruptcy. Congress would take monetary policy from the FED and would simply stand in place of the FED through a monetary board. The FED credit computers would be transferred to Congress who would issue new credit (money), because under our present system 97% of all money originates as credit. This new credit would keep the system going and prevent collapse. It could all be done without interest and without debt. The backs of the international banking cartel would be broken forever, and the American people through their elected representatives would control monetary policy; i.e. money in circulation, interest rates, and credit availability.”

Pearlstein, Bush, Paulson, Pelosi, et.al., along with Obama and McCain, should also read the U.S. Constitution. Then they would see that the problem stems from the fact that in 1913 Congress privatized our money supply by turning it over to the private banks that own the Federal Reserve System. This is also why we have lived under the mass delusion that a healthy financial sector leads to a healthy producing economy.

Actually it’s the other way around. The financial sector should support the producing economy, not bleed it dry through interest, fees, commissions, and the destruction that arises from financial profit-seeking.

There is also the fact that while the producing economy has been hammered by job outsourcing and bled white by financial parasitism, it is still a powerful machine that can produce the goods and services people need. We are a strong, capable nation. And we are blessed with the resources we require for a decent standard of living, though not necessarily at a rate of consumption that forever outpaces the rest of the world. But what is wrong with that? The underlying strength of the producing economy was on display this morning, when the Dow-Jones defied the doomsayers by coming back strongly the day after the bailout was defeated.

We now need to do what Darrell Castle of the Constitution Party recommends: Use the power of the money supply to rebuild the producing economy that we have given away and rebuild it from the bottom up: from Main Street.

Unfortunately the fat cats and their political and media apologists “just don’t get it.” But the American people and the members of congress who voted the right way yesterday do.

Copyright 2008 by Richard C. Cook

You’re going to LOVE this woman –

From a New York Times article of SEPTEMBER 11, 2003!

”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” — Barney Frank (D-MA) is the current Chairman of the House Financial Services Committee.

Read the rest of the article and what was proposed 5 years agohere.

From the U. S. Treasury – (Our emphasis in bold red.)

President George W. Bush nominated Henry M. Paulson, Jr. to be the 74th Secretary of the Treasury on June 19, 2006. The United States Senate unanimously confirmed Paulson to the position on June 28, 2006 and he was sworn into office on July 10, 2006 by Supreme Court Chief Justice John Roberts. As Treasury Secretary, Paulson is the President’s leading policy advisor on a broad range of domestic and international economic issues.

Before coming to Treasury, Paulson was Chairman and Chief Executive Officer of Goldman Sachs since the firm’s initial public offering in 1999. He joined Goldman Sachs Chicago Office in 1974 and rose through the ranks holding several positions including, Managing Partner of the firm’s Chicago office, Co-head of the firm’s investment Banking Division, President and Chief Operating Officer, and Co-Senior partner.

Prior to joining Goldman Sachs, Paulson was a member of the White House Domestic Council, serving as Staff Assistant to the President from 1972 to 1973, and as Staff Assistant to the Assistant Secretary of Defense at the Pentagon from 1970 to 1972.

Paulson graduated from Dartmouth in 1968, where he majored in English, was a member of Phi Beta Kappa, and an All Ivy, All East football player. He received an M.B.A. from Harvard in 1970. He and his wife, Wendy, have two children, Amanda and Merritt.

Now – this is an interesting “take” on the bail-out issue from a columnist at Bloomberg.com and why Goldman Sachs NEEDS this money (your money). It’s a tough read for those of us who did NOT make $68.5 million last year, as did Lloyd Blankfein, the CEO of Goldman Sachs…or even the $10 million or more “many otherwise ordinary human beings took home” – but well worth your time to see how these guys think. Here’s an excerpt about our boy Henry –

…One of the things they say is that, in leaving Goldman for government service, Paulson made the greatest trade of his life. Not only was he required to sell his half-billion dollars in Goldman stock near the high, but also, as Treasury Secretary, he was exempt from capital-gains taxes. By getting out of Goldman while the getting was good, the guy may have doubled his net worth.

Ask your Representative and Senators how Basel II is impacting the bail-out – and why we haven’t heard anything about it on the “news.”

From Wikipedia

Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. In practice, Basel II attempts to accomplish this by setting up rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk the bank exposes itself to through its lending and investment practices. Generally speaking, these rules mean that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability.

In a stunning rebellion by rank and file members, the House of Representatives defied their party leaders Monday afternoon to reject President Bush’s colossal sweeping bailout of Wall Street.

“This is a huge cow patty with a piece of marshmallow stuck in the middle and I’m not going to eat that cow patty,” declared Rep. Paul Broun (R-Ga.) (Our emphasis.)

The Dow Jones industrial average fell 600 points, before rebounding slightly.

The measure went down 205 to 228 but party leaders were keeping the vote open to try to change enough minds to reverse the result.

The stunning vote came after three emotional hours of debate over the most sweeping government interference in the free market since President Franklin Roosevelt rewrote the American economy in the 1930s.

The bill, presented by Bush and Treasury Secretary Henry Paulson as a vital measure to save an economy heading for serious recession, was backed by Democratic and Republican leaders of both houses, as well as presidential candidates Barack Obama and John McCain.

As the debate began, Bush told lawmakers, “This is a bold bill that will keep the crisis in our financial system from spreading through our economy.”

Behind the scenes, administration officials were twisting arms, warning direly of financial crisis on Main Street if Wall Street doesn’t get help.

To win enough votes from rank-and-file Democrats and Republicans, party leaders said there was no choice but to vote for the bailout or see ordinary Americans lose their jobs and homes.

“The meltdown would begin, it is true, in a few square miles of downtown Manhattan. But before it was over, no small town in America would be untouched,” said Rep. Steny Hoyer (D-Md.), the Majority Leader.

But dozens of congressmen defied their leaders to vote against a bill that no one said they liked. (Our emphasis.)

Broun questioned why more government money should be thrown after the $200 billion given to Fannie Mae and Freddie Mac, the $85 billion used to save AIG and $30 to save Bear Stearns.

“This is the same old story. We’re just going further down the road,” he said.

Rep. Jeb Hensarling (R-Tex.) warned America was on a “slippery slope toward socialism.”

Illustrating the urgency of the matter, Wachovia sold itself to Citigroup this morning, another huge bank failure that means most of America’s deposits are now in the hands of just three banks: Citigroup, JP Morgan Chase and Bank of America.

In the last two weeks, Wall Street titans have fallen like dominos, from Lehman Brothers to Merrill Lynch to AIG to Washington Mutual.

The credit crisis was spreading across the world yesterday.
In London, regulators swooped in with a $280 billion seizure of mortgage lender Bradford & Bingley, sending UK stocks to a three-year low.

The sprawling Belgian-Dutch financial group Fortis also needed a bailout from Benelux

Washington’s big bailout aims to unfreeze short-term lending between banks and corporations by buying up the widespread housing-related bad debts that are paralyzing financial companies.

Do YOU have time to read the Bill that will change the financial landscape? Here it is.

From FT.com (Financial Times)

By Bertrand Benoit in Berlin

Published: September 25 2008 11:55 | Last updated: September 25 2008 20:28

The US will lose its role as a global financial “superpower” in the wake of the financial crisis, Peer Steinbrück, the German finance minister, said on Thursday, blaming Washington for failing to take the regulatory steps that might have averted the crisis.

“The US will lose its status as the superpower of the world financial system. This world will become multi­polar” with the emergence of stronger, better capitalised centres in Asia and Europe, Mr Steinbrück told the German parliament. “The world will never be the same again.”

His were the most out­spoken comments by a senior European government figure since Wall Street fell into chaos two weeks ago.

He later told journalists: “When we look back 10 years from now, we will see 2008 as a fundamental rupture. I am not saying the dollar will lose its reserve currency status, but it will become relative.”

The minister, who has spearheaded German efforts to rein in financial markets in the past two years, attacked the US government for opposing stricter regulations even after the subprime crisis had broken out last summer.

The US notion that markets should remain as free as possible from regulatory shackles “was as simplistic as it was dangerous”, he said.

But Mr Steinbrück had warm words for the US’s crisis management in the past fortnight, including the government’s planned $700bn rescue package for the financial sector. Washington, he said, had earned credit for acting not just in the US interest but also in the interest of other nations.

Yet he repeated Germany’s refusal to mount a similar rescue operation using taxpayers’ money to acquire toxic assets. “This crisis originated in the US and is mainly hitting the US,” he said. In Europe and Germany, such a package would be “neither sensible nor ­necessary”.

The US, Mr Steinbrück said, had failed in its oversight of investment banks, adding that the crisis was an indictment of the US two-tier banking system and its “weak, divided financial oversight”.

He blamed Washington for refusing to consider proposals Berlin had made as it chaired the Group of Eight industrial nations last year. These proposals, he said, “elicited mockery at best or were seen as a typical example of Germans’ penchant for over-regulation”.

His comments followed calls this week by Nicolas Sarkozy, the French president and current holder of the European Union presidency, for an emergency G8 meeting on the crisis.

Mr Steinbrück’s proposals include a ban on “purely speculative short selling”; a crackdown on variable pay for bank managers, which had encouraged reckless risk-taking; a ban on banks securitising more than 80 per cent of the debt they hold; international standards making bank managers personally responsible for the consequences of their trades; and increased co-operation between European super­visors.

Following a meeting with Christine Lagarde, his French counterpart, in Berlin, he said France and Germany would set up a working group of treasury, central bank and supervisory authority officials that would consider tougher regulation of short selling.