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Bankers Balk at Fees

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The latest twist in our financial fiasco has more irony than a Woody Allen movie. Those fine institutions that have made passing fees along to its customers for the slightest of transgressions an art form, are now whining when something similar is being asked of them. These fines in the form of fees from banks have become one of the more insidious forms of torture in our lifetime. This irony starts with some banks who have concluded they do not want to keep TARP money from the government. The government rightfully questions just how solvent these banks are and whether the money they have taken will be needed later for their survival. The rules and regs attached to the Tarp money is apparently more than their poor little banker hearts can stand. This has led to the beginning of quite the brouhaha between the feds and the banks that want to give the TARP money back.

Not only are these banks trying to run as far away as possible from the government oversight brought upon by taking TARP dough but the feds are now asking these champions of the early withdrawal fee for something similar to an early withdrawal fee. This is where the irony kicks in big time as these banks are squealing like pigs about how unfair this is. Imagine all the times you got nicked for minor transgressions to your bank and they stuck it to you with an unrelenting fervor, it does appear payback time has arrived.

Not only are they up in arms about this early payback fee but this fight could get really ugly regarding the governments plans for the forced sale of bad mortgages. Turns out these bankers are having nightmares over having to swallow a bad deal for them. Of course this bad deal meaning they lose some significant money is the feds way of minimizing their pain within reason. However reason and fairness in regards to doing business do not appear to be concepts these bankers care to acknowledge applies to them. On the other hand unfettered greed, taking insanely bad gambles, and the willingness to send lots of pain far beyond their walls if the decisions they make don't work out, are all in their wheelhouse.

It appears these banks want to give back the TARP money back with no strings attached. Of course if an individual or a business borrowed money from a bank and with some luck it turned out that they didn't need it and they told the bank that they want to pay the money back without any of those nasty strings attached then the banks would look at them like they were telling them a bad joke. Apparently an element in the banking community lives in this parallel universe where they play by different rules than everyone else and can do whatever the hell they want without any consequences. For example a big sticking point in this latest tussle is that the executives of these banks can t quite accept the limitations put on their executive pay when TARP money is in play. Kind of like people that lose their jobs can't quite accept having no income.

The other big point and this is where the rubber really hits the road, those gazillions of dollars in bad debt that caused civilization to almost come to a standstill, well banks want more money back than the feds arranged for them to get when selling off these nasty toxic debts. As fate would have it, the market for these very toxic debts at the moment isn't quite to their liking and they want to sit it out until that market improves. On top of this, I believe its entirely possible the banks that don't want to keep TARP money are doing this with the idea that it buys them time to handle their business free of TARP restrictions and oversight knowing that the feds will step in and save them if down the road they need to be saved. These masters of disaster are also the wizards of greed.

Timmy Two-Shoes Geithner the fed's financial tap dancer must really have his knickers in a twist after hearing this load of blarney. Timmy the spy planted inside the Obama administration to protect the financial status quo did the financial equivalent of twisting together a gigantic pretzel in order to avoid the nationalization of banks and maintain the status quo yet his yeoman efforts are not enough for his financial brothers.

To fully appreciate all this it's important to really understand what nationalization of banks really entails. It's fairly simple. The government would take over banks that are unable to weather this economic storm on their own but only until the bank can stand on its own two feet. During this interim period the feds are their lord and master and know all their secrets. The feds take the positive assets of the bank and create a new bank known as the good bank. They also take the banks current negative assets and create what is known as the bad bank. This stops a bank's positive assets from being gobbled up by the bad assets that resulted from the rank stupidity of the players who rolled the dice with the banks money and came up snake eyes. For a period of time these two banks co-exist side by side but separate until these nasty toxic assets lose enough of their toxicity to the point where they can be sold off for less of a loss than they are worth as of today. When the degree of these nasty ugly assets as a whole get to the point where they can be absorbed by the good asset bank and not threaten its solvency then the bankers get their get out of federal bureaucracy hell for free card and can resume life as they formerly new it. It should be noted that a number of brilliant economists such as the recent winner of the Nobel Prize in economics Paul Krugman believe that the sooner nationalization of zombie banks takes place the sooner we all get out of economic hell. However the banking community sees this solution as comparable to water boarding, telling a five year old Santa Claus doesn't exist, and a root canal all rolled into one.

Here is a link for the grimy details of the latest tug of war between the banks and the feds.

This complicated and probably convoluted plan Timmy Two-Shoes and his pals have concocted has the government using taxpayer's money to make it more appealing for buyers to buy these toxic debts by offering cheap money they can borrow from the government. However, these business men for some reason still want to make money off their investment and apparently the bankers see too much profit for these buyers and not enough for their greedy selves in the government's latest plan.

Specifically you have on one hand the banks who want to run away from the restrictions of TARP money as soon as possible and you have the government trying to fix the disaster created by these banks who are hesitant to allow early repayment until the a bank can show it can take the blow of more losses and keep on lending money which is the lifeblood to everyone's economic recovery. Reading between the lines the banks priority is not the economies fastest possible recovery but covering their own ugly backsides and maintaining the status quo.

A fine example of this dilemma is embodied in Douglas Leech CEO of Centra Bank, a small West Virginia bank that took TARP money but later returned the money. When the feds later added new conditions for taking TARP money back Mr. Leech took exception to this. These new conditions presumably arose from the outcry of Americans who were appalled at how banks saved by their taxpayer money were giving that money to shareholders and executives among other shady moves by the banks. The feds said it was cool to return the money early but you still have to make repayments of the special warrants which in effect was like an early withdrawal penalty. According to Mr. Leech, that effectively raised the interest rate he paid on a $15 million loan to an annual rate of about 60 percent. Big Doug went as far as playing the un-American card. He said, "What they did is wrong and fundamentally un-American. Even though the government told us to take this money to increase our lending, the extra charge meant we had less money to lend. It was the equivalent of a penalty for early withdrawal." Oh the pain, oh the irony oh the end of civilization as we know it because a bank has to pay a penalty for early payment of a loan.

However, our pal Doug skips over an important point. If he kept the TARP money and those dastardly restrictions on his executive pay among other things he would not have to pay the equivalent of an early withdrawal penalty. By keeping the TARP dough he would not only get to keep the penalty money for lending purposes but he would also have another cool 15MM to borrow to the good folks of West Virginia. However, Doug and others of his ilk apparently go by the code of its better to keep bankers in their comfort zone doing whatever they damn well please, than have more credit money flowing into the system regardless of how helpful this lending could be to the nation's economic recovery. What a bunch of babies these bankers are. Once again the banks have put the feds in a tough position. Regulators are reluctant to approve the early repayments until banks can show that they have the capital to take the hit if there is a continued downturn in the economy and that a continued downturn will not slow down their lending efforts. This lending is of course crucial to getting the economy moving forward. So it sure appears the banks are willing to risk a slower recovery if it means they don't have to deal with TARP conditions. What's a government to do with these head strong greedy children/bankers.

I say to Mr. Leech not only is it un-American of him and his bank not to make some sacrifices to do all his bank can do to keep credit flowing to those that need it but it is also un-American of his brethren banks to double interest rates and lower credit limits to those customers that have a long history of paying their bills on time to these banks. For a long time it has been un-American how banks force unethical fees and conditions on their borrowers.

Bnet reports that banks which took TARP money are being investigated because since October when TARP money was doled out, banks jacked up charges on a variety of routine transactions and credit card rates. The selfish hypocrisy over how banks conduct their business in general and how they want this TARP money handled could choke a dinosaur.

Here is the link to Reuters report. One last detail on this irony/hypocrisy alert, the 800 pound gorilla in the house in regards to turning around this mess is how to relieve banks especially the weaker ones of these toxic mortgages and mortgage backed securities. Goldman Sachs projected that banks are currently valuing their oh so toxic debts at 91 cents on the dollar. Seems a bit high for a toxic debt to me and it turns out that this is far more probably laughably more than investors are willing to pay for them. This asking price is so beyond the pale investors are unwilling to bite even though with our taxpayer money the feds are offering these potential investors' cut-rate loans to get the ball rolling. According to the New York Times, Frank Pallotta, a former mortgage trader at Morgan Stanley, now a consultant to institutional investors is quoting as saying, "The gap is still very wide. If every bank was forced to sell at the market-clearing price, you'd have only five banks left in the market." Which brings us full circle, to nationalize banks or not to nationalize banks, that is still the question.

Obama and Timmy Two-Shoes are doing their best to avoid this yet again the banks are taking the my way or the highway stance in spite of having little leverage other than acting like spoiled brats who do not want to take punishment for their misdeeds as well as not do what is right for everyone else.

It bears repeating that this latest tussle in the financial world once stripped down to its bare parts appears to reveal that the banks that took money from the government to both ensure their survival and supposedly participate in the speeding up of the recovery of the economic system as a whole are willing to slow down this recovery in order to avoid like the plague any and all restrictions placed on them by the government. With team players like this who needs enemies. Can you imagine being stuck on a lifeboat in the middle of the ocean with these bankers and suddenly you get ill and need more water than what has been allotted to everyone? Based on their behavior during this crisis, I would fully expect the banker's response to this request for some extra water because of your illness would be to shove you over board.

If Obama and his people don't do something major to change this super frigging duper privileged culture elite bankers live in once this mess is over these masters of disaster and wizards of greed will no doubt create another mess to be fixed and endured. The S&L crisis, the sub prime crisis, the elite bankers suck again crisis. Another possible irony in this ironically monstrous mess is nationalizing the zombie banks could kill two birds with one stone. It would be the cleanest and simplest way to unload to toxic debts as this method worked very well for Sweden in the 90's albeit on a smaller scale. It could also be the teleport machine that magically transports the minds and hearts of bankers who feel that they can do whatever they want whenever they want into everyone else's universe where there are consequences often hard consequences to our mistakes. With that in mind I say Obama's response to the banks request that the government change how they want the early repayment of TARP money handled, be clear and simple. That would be for him to tell them in a nice way of course to kiss his butt.