$700 Billion In Taxpayer Dollars To Kill Small Banks

"Like a thief in the night, it cuts like a knife"

-Marty Brown

I was opposed to the Wall Street bailout from day one.

We were asked to trust the Bush administration, with no track record for truthfulness, to send $700 billion to Wall Street, not Main Street.

Bush, Paulsen and Wall Street want to stick it to Main Street even further.

It appears that the $700 billion will be used for Wall Street banks to take over small banks, in small towns.

Like the one I live in.

The bailout supporters made two arguments. The $700 billion was supposed to stop a financial meltdown. After we bailed out Wall Street, it was supposed to open a floodgate of credit for Main Street.

It didn't come down that way.

The meltdown continued, even after the bailout.

I'm waiting for that cash flow to come roaring into small towns. Like mine. It hasn't happened and, according to a stunning New York Times column by Joe Nocera, the money is not coming soon.

The $700 billion may never see Main Street. Unless you count Wall Street banks gobbling up Main Street banks.

Unlike other countries, such as England, the United States did not REQUIRE that banks taking government bailout money lend it out! Lending is not required, just "encouraged." The banks can do what they want with it.

If I was a running a bank, my primary "encouragement" is to make money for my shareholders. If I can take government money and use it for something more profitable, I am going to do it.

Like any businessperson would.

The most profitable thing banks can do is take government money and buy up another bank. We saw it happen last week and will see it happen many more times.

It's what Bush and Paulsen wanted all along. They snuck a provision in the bailout bill that gave BILLIONS in tax breaks for big banks to buy other banks.

Bush and Paulsen want to reshape the banking industry to allow only big Wall Street banks to survive. A tax expert, quoted by Nocera, said "It couldn't be clearer if they had taken out an ad."

Nocera, who supported the bailout bill, said that the rationale that the bailout would make banks start lending again, is "Treasury's version of the weapons of mass destruction."

I feel duped. I feel deceived. I want to vote against a congressman who supported the bailout, but my congressman saw the bailout's flaws and voted "no."

I like small banks. They are an important part of my business and my life.

Starting in high school, I've always had a personal relationship with my banker. A small town bank put me in business and another kept me in business. I want to know that the person I'm talking to is a final decision maker. I don't want a committee or a computer in New York to decide for them.

The gang on Wall Street has lost trillions and put the nation in economic peril. I don't want to do my banking with them.

I'll take my chances with a banker who knows me, knows my business and knows my family. It's worked so far. I suspect if you surveyed other Main Street business people (I am actually three doors from Main Street, but close enough), most would feel the same way.

Small town banks have not been hurt as badly as Wall Street banks. Most were not playing the sub-prime game. None of their officers get million dollars bonuses. And I am sure the officers don't get tens of millions to leave when they lose their stockholders' money.

In other words, they are personally responsible for the lending decisions they make. Unlike the people on Wall Street, they can't screw up and expect a golden parachute at the end.

I trust the small bank business model more than I trust what they are doing on Wall Street. I don't want Wall Street taking over small town banks. I don't want them to use taxpayer money to take the bank and I especially don't want the Wall Street banks to get billions in tax credits to do it.

I want them to lend money to people on Main Street. Someone told me that was what the $700 billion was all about.

People say we can fix it when we get a new President and new Treasury Secretary. That is three months. By then dozens of mergers and takeovers will have taken place.

We need to act now.

Once you allow a bank to be gobble up other banks, just like when you invade a country, it is almost impossible to undo the damage.

Especially when that damage was based on misleading information.

Don McNay is the Chairman of McNay Settlement Group in Richmond, Ky. and the author of Son of a Son of a Gambler: Winners, Losers and What to Do When you Win the Lottery. You can write to him at [e-mail] or read other things he has written at www.donmcnay.com

Follow Don McNay on Twitter: www.twitter.com/Donmcnay

Comments

[iambusto]

small banks dont have economies of scale. big banks do. whats so hard to understand? to survive and grow you need economies of scale.

[HonorJusticeTruth]

What you don't mention is that the economy of scale argument is accompanied by a graph showing size versus profit. At some point on the graph the size/profit ratio reaches an optimum, but after that the efficiencies disappear and profitability is lost. The size argument is about risk. The bigger you are, tthe less risk you have. And if you become enormous, and then fall down, you can cry out "help me, I'm too big to die". The current mergers are just creating even larger monoliths who, by the very nature of their management, will find themselves in trouble again and then they too will cry out for help.

Finally, the growth argument is a fatal flaw we've all been sold. "If you aren't growing, you're dying". A stable business with a decent profit line, upgraded per year for inflation, which doesn't feel that it has to become massive, is not a bad thing. The owner profits, the employees have a stable place, and the primary risk they face is that someone wanting to grow will eye them and want to devour them.

[23000Days]

Yeah!
What YOU said.....!

[peterg76]

Banks don't manufacture anything, they just issue debt. Large or small, they don't have economies of scale.