Paying a loan back never felt so bad
By Justin Williams
When the government offered $700 billion dollars to buy trouble assets from many banks across America, some were very hesitant to accept these funds.
For example, BB&T's former (as of 12/31/09) CEO John Allison wrote a letter to Congress explaining that certain bad governmental policies are to blame for the current financial crisis. BB&T is still strong and lending money according to Allison and now CEO Kelly King.
Later, when BB&T along with many other major financial institutions wanted to wash their hands clean of government funds, they were told that they would not be allowed until they passed strict tests, as ALG News previously reported. Even though Barack Obama said that he has no interest “in managing these banks—or running auto companies or other private institutions, for that matter," he has now granted a small few the right to repay their TARP loans. Why not all of them?
The ten banks that will be paying back $68 billion dollars include: J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley, BB&T, U.S. Bancorp, American Express Co., Capital One Financial Corp. Bank of New York Mellon Corp., Northern Trust Corp. and State Street Corp.
What exactly is the secret recipe that the bureaucrats came up with to allow these banks to repay loans? Nobody knows. Or at least, nobody is saying publicly.
All that Secretary Geithner stated in his release to the press was that the banks' willingness to pay is “an encouraging sign of financial repair, but we still have work to do.” Barack Obama has not let the banks off the hook either. He said that “the return of these funds does not provide forgiveness for past excesses or permission for future misdeeds.”
And while the government takes their sweet time deciding which banks can and cannot pay back their loans, they continue reap in the dividends from these “troubled” banks. The federal government has already turned a profit of $4.5 billion in dividend payments from all of the banks, including $1.8 billion from the ten banks listed above. That, even though failing businesses do not usually pay out dividends.
Why is it exactly that the banks have to jump through hoops just to pay back loans? Nobody knows. Or at least, nobody is saying.
Banks sometimes discourage early payment of loans with penalties on mortgage contracts, but this is always agreed to beforehand and protects the bank's profit. There was no announcement at the outset of any penalty for early payment. And it was understood that the government was not a profit-making entity. And yet, the government has saw fit to control arbitrarily who is and is not allowed to pay.
What are the terms and conditions for repayment?
These banks should be allowed to pay back the loans, anytime they deem it necessary. Those bankers should know what's better for their business than some bureaucrat who has never run a business in his lifetime. It's not up to the government to tell a bank that it is too fragile to come off government assistance.
President Obama, since day one, has tried to get involved into every aspect of these financial institution's decisions, where he continues to play up the myth that capitalism is to blame to all of society's ills. What he—and Congress and the bureaucracy—are still in denial of is that the Federal Reserve was behind the bubble to begin with its policies of loose credit and easy money.
In short, the financial crisis was a governmental failure. Not a market failure.
Finally, to make matters worse, there isn't even a plan of what to do with the money being repaid from these banks. In the press release issued by the Treasury Department today, Geithner states that “proceeds from repayment will be applied to Treasury's general account. These repayments help to reduce Treasury's borrowing and national debt. The repayments also increase Treasury's cushion to respond to any future financial instability that might otherwise jeopardize economic recovery.”
So, which is it? Does the Treasury keep the cash or run TARP indefinitely? The repayments might be used to pay off the federal debt, or they might get recycled back into the program, and TARP will never end. Again, nobody knows, and nobody's saying.
And with the Obama Administration serving notice to banks that they are not off the hook yet—even in repayment—it is no wonder that many of those same banks were reluctant to take the money to begin with.
Justin Williams is a Contributing Editor of ALG News Bureau.