THE CURMUDGEON CHRONICLE ©
AN IRREVERENT VIEW
Time Line: July 2nd 2009
Date Line: Flemington New Jersey
A short while ago we were told the banking system was sliding down the drain; massive infusions of money were needed to save the system; it would be years before the banks would recover; some banks had to be absorbed to save the system, and that Paulson and Bernanke had the answers. Some ((including us) thought that was nonsense.
The “crisis” was the result of stringent application of an inappropriate accounting rule adopted by the SEC, the agency that failed to regulate an industry that needs regulation to assure viable, trustworthy, securities markets. The Federal Reserve System has a similar mandate for banking and the flow of credit: the simultaneous failure of both spelled d-i-s-a-s-t-e-r.
The silver linings? Mr. Paulson (then the Treasury Secretary) eliminated his former rivals, Lehman Brothers and Merrill Lynch. One is bankrupt and the other the bride in a shotgun wedding with B of A.
The US loaned $300 billion to the banking industry.
Less than five months after the fact, $69 billion has been repaid; another $150 billion is ready and borrowers are anxious to repay the advances. The remaining loans are in the process of being readied for stress testing and repayment. The TARP money never got used as intended by the government; people are faced with a very limited number of lenders for home, auto and household loans, and credit card interest is usuriously high.
The industry is grateful to the taxpayers and the Government that represents them. This morning the friendly folks at Citibank have shown their appreciation by announcing a massive increase in interest rates on credit card debt presently outstanding. The banking system is doing very well; it is neighborhood businesses and consumers that cannot survive the cost or the loss of access to credit.
The US appointed a Compensation Czar for any company that gets government assistance. Sounds fair: banks have always put limitations on executive compensation when troubled borrowers use their money. Government has a regulatory obligation in interstate commerce, but it has no mandate to be in business. Nevertheless, government is now in the business of liquidating our industries. The treatment is like a doctor’s before antibiotics; amputation is the preferred cure for an infected limb. You can’t save the US auto industry by making it sell itself piecemeal to Canada, Japan, Korea, and Italy.
You can save the auto industry with orders to replace the vehicle fleets of police and fire departments; US military units, and government agencies. We loaned two bankrupt companies over $100 billion. Translated into vehicles at an average cost of $25K, we could have given the US industry orders for 4 million vehicles; increased payrolls and jobs, and saved the industry. Private capital would have funded the manufacture and delivery of those units and the US would have gotten something of value, not a questionable obligation to repay from a bankrupt company.
You could have insured the future too by coupling the orders with a quasi-reorganization proceeding to eliminate outdated commitments, and reorganize unwieldy capital structures. That is not what happened; what we’ve got is a Compensation Czar whose exploits will rank with the invention of the tilde.
The moral of the story?
No matter how well intentioned a candidate may be, once elected his administration will be responsible for conduct best exemplified by the US Postal Service.^
Howard Stamer
(^Neither rain nor snow, nor gloom of night shall stop the delivery of unwanted and unnecessary bumph to your letterbox except OIABM*),
*Once In A Blue Moon
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