As for the original post – “crybaby consumers” will have more to cry about as the effects of new regulations hit them. I’m in favor of some regulation: creditors should not be allowed to break knee-caps to collect on debt, or commit fraud (lie) in their dealings with customers. But when someone signs a contract that warns interest rates may be raised on 10 or 30 or 90 day notice, they have not been abused when that happens. If you sign a variable interest rate contract, how can you complain that the interest varies? If you want or need a fixed rate longer-term loan or a loan with the interest rate pegged to some particular index, you should get one (assuming you qualify). Credit cards are not intended to be such instruments.

If credit card companies are restricted from changing rates, especially on their riskiest customers, they will simply tighten lending standards. Is the risky customer better off having a higher interest loan or having no loan at all? I don’t know, and nobody else does either, except for the risky customer, who will then be deprived of the choice that used to be available.

By the way, I happen to think our society would generally be more financially stable if people who aren’t good at handling money and debt have a very hard time qualifying for substantial debt. But those people may disagree with me, and as long as they are adults and not under a legal guardianship, it really isn’t my business or the government’s business to choose exactly where their place should be on the lifestyle versus risk scale. That our current crop of politicians assume it is their business worries me a great deal.

First of all, I never said all of the financial institutions that took TARP were sound, I said some of the banks that took TARP were sound. I said some of the banks would’ve been fine without it, not all banks. Why are you deliberately misquoting me? I don’t know how many were sound and how many were not – maybe I shouldn’t have said “most” of the first 9, I should’ve said “some” or “almost half”. Citi was certaianly not sound. The banks I specifically mentioned by name were not in danger of collapsing. I don’t know about others, I didn’t see their balance sheet. You, on the other hand, are insisting on painting every bank that took TARP with the same brush. Are you denying that Paulson didn’t give a choice to the first 9 banks?

As to stress test – this test is not about whether the banks have enough capital now it is whether or not they have enough capital if many very bad things happen. However, I will reserve judgement on that until we know both the test and the results. As to current situation of Wells – a lot of it is due to Wachovia, and this purchase happened after it took TARP (correct me if I am mistaken).

“Because banks were afraid to transfer money to failing institutions (please don’t make me link this for you).”
Because banks DIDN’T KNOW which institutions were failing and which were not. Some were failing. Some were not. Same with TARP really – the whole idea of having all 9 institution take it is that having taken TARP wouldn’t immediately separate good institutions from bad ones. And this was only one of the reasons, hoarding money against future losses in paper value of CDOs was another.

“To whit, if the financial industry is so robust as you claim”
I made claim about specific institutions not the whole financial industry. It is you who paint all banks that took TARP with the same brush, not me. My point was that you cannot say “they took TARP so they have to do X” because NOT all of those who took TARP needed it. Please show me where in my posts have I made any claims about financial industry as a whole or all financial institutions?

“As for whether these “loans” were really gifts… I am tired of arguing the point because you obviously believe that businesses can do no wrong. ”
I don’t say businesses can do no wrong. I do however believe that a) you don’t pay dividends on gifts and b) you don’t give preferred stocks and stock warrants on gifts and c) gifts come with no strings attach. If I give you a gift, ask for your company stock in return and tell you what need to do with it, would you consider it gift? Maybe it is my English and I don’t understand the meaning of this word?

I also believe that government’s interfering is counter-productive, hurting the taxpayers and the economy.

Out of curiousity – what was your job in Wells Fargo that let you know more about its operations than most of us? I work for a large corporation and I don’t know any more about its finances than any shareholder.

“But the disputes over the stress tests, which have been administered to 19 big banks, and a lackluster reception to the third effort, the Term Asset-Backed Securities Loan Facility, or TALF, are also potential worries.
Large banks are being put through a battery of tests to see whether they will hold up under pressure in the worst-case economic assumptions over the next two years. Big banks like Citigroup, Bank of America, PNC Financial and Wells Fargo [WFC 19.97 0.49 (+2.52%) ] are disputing some of the early findings, which suggest some banks may need to raise capital, according to people briefed on the exams.”

The above quote is from the link you actually provided.

Most of your comments are based on you presumption that these financial institutions are all sound, to which I would say you are sadly mistaken. Let me walk you through this crazy opinion you seem to think I have….

“The original purpose was NOT to keep bad banks from failing but to free up credit markets.”
To which I would say hooey! Why exactly did the credit markets seize up Kitty? Because banks were afraid to transfer money to failing institutions (please don’t make me link this for you). It was and has always been about propping up the industry, and keeping the lifeblood of the economy moving.

To whit, if the financial industry is so robust as you claim, then why are banks failing at a record number (twenty-nine for the year a couple of days ago)? Oh, let me guess none of those other financial institutions took TARP money (snark)? Or maybe you think that yes there are weaknesses in the financial machinery but the nine banks to which you refer are “immune” from failing?

Sigh, I do agree with your comments on Goldman Sachs but not for the reasons you have put forward. I believe that they are entirely too well connected politically to be allowed to fail, and please note that they have been very very quiet through this entire debacle (and generally supportive).

Well Fargo on the other hand could be summed up by saying, “Methinks thou dost protest too much”. They are not nearly as secure as they would pretend imho based on random tidbits, and some personal experience beyond that listed already (I used to work for them and parted amicably after 11 years). They are a truly creative bunch and it is my hope that they can dig themselves out of the Wachovia debacle. But I have my doubts.

As for the remaining nine, I think there are a number of them that are as Paul Krugman describes them – walking dead (zombies). Some are hanging on by a thread and others like Goldman will end up doing extremely well. Dr. Krugman has several excellent articles on the matter here. I hope you enjoy his insights as much as I do.

As for whether these “loans” were really gifts… I am tired of arguing the point because you obviously believe that businesses can do no wrong. Time will tell on which of us had it right. It would be nice to see you win that battle because it means I didn’t just foresee trillions getting flushed down the toilet.

Oh, and your comment on credit card companies and free market – ROFL. You crack me up….

If you are agreeable, we can revisit this later in the year for a “I told you so” moment? Just a toast to the oracles of HardTruth.

Peace.
Rick Beagle

“what would have happened to those companies if they had not taken TARP money? What would have happened to their stockholders? It was a gift from heaven itself.”

Most of these companies were just fine without TARP, so no TARP was not a gift from heaven. Goldman Sachs stock was in upper double digits, for example, and the company has no exposure to sub-prime – if anything they played against CDOs, but this is a different story. Wells Fargo whose CEO was the one to resist most strongly to TARP – it is public knowledge, just google for Wells Fargo and TARP – was viewed as one of the healthier banks with very little if any exposure to sub-prime. Remember, this was before they bought Wachovia. Even some banks that asked for TARP were not in danger – US Bancorp for example, that also was one of the strongest banks with conservative lending practices took the money because they felt they were in a competitive disadvantage (they are repaying it, by the way); USB CEO just called the whole program “bait and switch”).

The definition of TARP changed a lot from when it was first introduced. The original purpose was NOT to keep bad banks from failing but to free up credit markets. After the fall of Lehman the credit markets froze – there was no lending between banks and even good companies couldn’t get credit. I happen to own stock in a large Greek shipping company. Their ships were stranded because they couldn’t get loans to pay their crew (they first pay, the deliver goods, then get paid). Main reasons were a) banks couldn’t trust each other since nobody could be sure of what the other bank has on the balance sheet b) banks expected further (paper) losses in value of their CDOs and hoarded capital against future losses in CDO value (that counts against capital requirements – banks are required to maintain a certain minimum ratio between capital and the amount of money they can lend, normally it is around 10% i.e. banks take $100 in deposits, keep $10 and lend $90. At the height of credit crisis it went up to almost to a 100% as banks were hoarding cash) c) there simply were fewer large banks. The idea of TARP was to encourage banks to start lending again by providing capital to improve capital ratios. It also helped to buy weaker banks (even if it wasn’t the original intention, it was encouraged).

The reason for asking EVERY one of 9 largest banks to take the money regardless of their balance sheet is to avoid stigma associated with the money: without this every bank asking for money would’ve been viewed as weak, so banks would’ve been reluctant to take it. Again, this is public knowledge, I don’t understand how you can deny it other than your own beliefs.

“How much are they worth if the company fails? But that question pales to the underlying concern here, why is our government investing in these organizations?”
See above. Show me how, for example, Wells Fargo was in any danger. Even Bank of America was OK until it bought Countrywide and Merrill Lynch.

A very entertaining article – yes it is just an opinion, but it tells how much money a bank that just repaid TARP had to pay in interest and also illustrates some TARP conditions: http://www.wboy.com/story.cfm?func=viewstory&storyid=57393

“Are you suggesting that companies that took TARP money (because they are so big hearted) and then decided to hold lavish events (as an example) were within their rights as companies to spend money however they saw fit? Perhaps only the ones that were “forced” to take the money should be allowed to use that money wastefully?”
Ethically or legally? In many cases TARP money was a fairly small percentage of total money the bank had. Ethically, I’d imagine the bank that never wanted this money in the first place has a perfect right to use some of its other money for whatever purpose. If you have 10 billion and borrow another 1 billion, don’t you have a right to use a small part of your own 10 billion for whatever you want? I do agree that the bank that depended on this money for survival shouldn’t ethically throw lavish parties. But legally, the only obligation companies had was what was written in the contracts. As long as they paid interest on the preferred stocks the government owned and satisfied other requirements they legally could “throw parties”.

Does your mortgage holder tells you if you can waste money on remodeling your kitchen?

”If the government perceives abuses to the good will of the American taxpayer and the misuse of their tax money, they get to change the laws/regulations.”

The laws shouldn’t be retroactive. Also any governments’ creating laws based on “perceptions” is probably dangerous. Especially if some of these laws are not even constitutional (I”ll let TML comment on that if he wants).

“The bankers are distressed because getting a loan from the Feds is a nightmare for them. Does anyone not think that is the right message for these bankers to take away from this whole fiasco?”
This class warfare, posturing and changing rules after the fact is hurting more than just a few CEOs. Would you deal with a lender who changed rules on you after the fact? Yes credit cards do it, but at least they warn you about it even if in fine print. Forget loans, would you deal with any party that started changing rules on you after the fact? Not to mention, that the government’s action would result in strongest banks’ repaying TARP sooner – instead of continuing getting high interest and potentially making money on the investment – and only weakest banks holding TARP money. But the main problem is that this is endangering success of future government programs and hurting the recovery.

“I think the skittishness that remains in the market (and rightfully so) has more to do with this than your suggestion. Concerns about the dollar would be my best guess, but who knows?”
You are determined to find any reason for it other than blaming lack of trust in the government. Sure, some of these things you mention may be one of the reasons. But again, would you deal with anybody who changes the rules on you after the fact and is capable to create a law to allow them to do so?
Most of the analysts I heard in fact mention what I said – nobody trusts the government any more not to change the rules. I did hear a number of banks’ say that “they learned their lesson” on dealing with the government and don’t want to continue. Read this article: http://www.cnbc.com/id/30470105 : “While administration officials say they never expected every bank to participate, large banks whose involvement was regarded as vital to the plan’s success have said they will not be involved. Executives worry that whatever assurances the White House gives them, an angry Congress might impose new rules on banks that participate, particularly on pay.” Again, this is just an opinion, but it makes sense.

Okay Kitty back to our argument, here is a thought, what would have happened to those companies if they had not taken TARP money? What would have happened to their stockholders? It was a gift from heaven itself.

“Are you denying that the government got dividend-paying preferred stock and stock warrants in exchange for the money? Or do you think it was worthless?”
How much are they worth if the company fails? But that question pales to the underlying concern here, why is our government investing in these organizations? It is a governing body, not an investment firm.

“Goldman Sachs wasn’t “on the cusp of failing” as you say it. Neither was Wells Fargo or Morgan Chase. For that matter neither were some of the companies that took TARP later e.g. USB or American Express. I challenge you to prove me otherwise. Use real earnings reports to demonstrate how these companies were “on the cusp of failing”. Check stock prices as well, especially pre-TARP.”
You lost me with your logic here. Are you suggesting that companies that took TARP money (because they are so big hearted) and then decided to hold lavish events (as an example) were within their rights as companies to spend money however they saw fit? Perhaps only the ones that were “forced” to take the money should be allowed to use that money wastefully?

“As to strings – there are laws. Why should the government be any different from other investors? In case of Citi where the bank was indeed in big trouble, government owns a lot of common stock, it’s the single major shareholder, so the government could simply vote any measure it wanted legally. Government also owns a large chunk of common stock in BofA, although not as much as in Citibank. However, the preferred stock that government got with most banks doesn’t give voting rights. Why should government violate the rights of other shareholders who actually own shares with voting rights? You cannot go back and violate the terms of the agreement, not in lawful society.”
This is the biggest bunch of hooey I have ever seen anyone put forth in my life. If the government perceives abuses to the good will of the American taxpayer and the misuse of their tax money, they get to change the laws/regulations. The fine print for this isn’t that hard to read…(cough) constitution/CNN poll.
But let me leverage against your absurd statement and say this – good. The bankers are distressed because getting a loan from the Feds is a nightmare for them. Does anyone not think that is the right message for these bankers to take away from this whole fiasco?

I just read my response to TAFL and I am perplexed at how I confused the two terms. I cannot apologize profusely enough, I can only assume that somehow I jumbled a number of topics into one POS. Let me try this again….

“Incidentally, do you know that the government’s plans for private public partnership and TALF are not very successful because nobody with a private capital nowadays wants to deal with the government? Last TALF auctions were extremely disappointing. 5 billion loans sold instead of 100 billion that government wanted. Talking about cutting your nose to spite your face.”
I think the skittishness that remains in the market (and rightfully so) has more to do with this than your suggestion. Concerns about the dollar would be my best guess, but who knows?

As for P-PIPs, even with VERY favorable terms for investors – I suspect we will see the same thing. I don’t know, the win-win for the investor might be enough for people to put money back into the game….

Peace.
Rick Beagle