Regnat Populus

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Posts Tagged ‘TARP’

Fedzilla Sinks Its Claws Into More Banks

Posted by Max Barron on May 13, 2009

BLOBPIC2

See! We told you so!  When the Fedzilla first began discussions of limiting or involving itself in executive pay for TARP recipients, we told you it wouldn’t be long before they expanded those policies and more to non-TARP banks.  We were right.  Yes, once again our oh-so-trustworthy federal government has once again decided to expand its reach, scope and power in such a way that would make The Blob envious. 

From The Wall Street Journal:

WASHINGTON — The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.

The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.

Administration and regulatory officials are looking at various options, including using the Federal Reserve’s supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively. 

There’s no real surprise here at all.  Conservatives were railing about this inevitable overreach months ago.  The statists are going to do what statists do… which is expand the government and grab control of everything that they can get their grubby meat-hooks on – by hook or crook.

At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government’s ability both to monitor compensation and to curb incentives that threaten a company’s viability or pose a systemic risk to the economy.

Speaking of crook… The banking queen is undoubtedly rubbing his slimy paws together in anticipation. Regulating compensation of banks – even non-TARP banks – must be a wet-dream come true. After all, he’s the Finance Committee Chair. This would give him unprecedented power and reach – “Do as I say, or I gut your pay… Give me what I want, and you get your bonuses.”  I’m certain that he is apoplectic with glee at the mere thought of puppeteering the financial institutions of the U.S. – money and power being the purveyor of his every masturbatory fantasy.

Financial institutions are just the beginning – phase 2, if you will – and it won’t end there, my friends.  Quote me on that.  In fact quote the Government officials on it as well.

Government officials said their effort, which is just beginning, isn’t aimed at setting pay or establishing detailed rules. “This is not going to be about capping compensation or micro-management,” said an administration official. “It will be about understanding what is the best way to align compensation with sound risk management and long-term value creation.”

In an indication of how broad the effort may become, Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators need to examine compensation practices in the mortgage industry, suggesting new limits could stretch beyond banks.

The administration official claiming that these moves aren’t really about capping pay and micro-management – which they obviously are – had to be laughing out loud at his own incredulous and unbelievable lies.  Considering that the administration is openly stating that they are doing precisely what this official is saying that they’re not.  Then the official turns around in the very next breath and tells us the exact opposite.  Which is fairly unsurprising.

Also, unsurprisingly the statists all but flat out say that they know best, and therefore should tell these institutions how to best run their businesses… because Freddie and Fannie – both sponsored by the government and overseen by Barney “Blowhard” Frank – did so well, right?  Speaking of Freddie and Fannie, Sheila Bair says mortgage institutions are next on the Fedzilla’s platter.  It is only a matter of time before the wheels of Capitalism are ground to a destructive halt… and our economically viable futures with it.

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Geithner Refusing TARP Repayments?

Posted by Max Barron on April 21, 2009

Eeeeexcellent

Eeeeexcellent

Today the Wall Street Journal reports that the Treasury Secretary wants bailed out banks to meet certain unspecified criterion before they can repay the TARP money loaned by the American Taxpayer. 

Treasury Secretary Timothy Geithner indicated that the health of individual banks won’t be the sole criterion for whether financial firms will be allowed to repay bailout funds, a position that might complicate their efforts to give back the cash.

Mr. Geithner wants to “consider the overall health” of the financial system before allowing the tax payers to be repaid in full.  There are a whole host of reasons for this, and in my estimation, the overall health of the financial system is the least of them.  Those reasons likely include profits from dividends and control of the banks.  The latter of the two is probably the chief reason.  However, Timmy has a bit of a different spin on it.

“We want to make sure that the financial system is not just stable, but also not inducing a deeper contraction in economic activity. We want to have enough capital that it’s going to be able to support a recovery,” Mr. Geithner said.

Hogwash!  This is soft-speak for “we want complete control of the economy.”  Essentially, he wants to keep the banks on the hook so that he can continue to pull their strings for whatever political machinations the Left desires.  Not to mention the added bonus of profits (to the tune of $2.5 billion thus far) on the dividends for TARP monies.  Which, I can assure you, will never be returned to the tax payers.  Instead it will line the federal coffers and later be doled out by Congress to their favorite pet projects.

Obama administration officials worry that the repayment of bailout money, combined with a general disinclination toward partnering with the U.S., could undermine their efforts to restore health to the financial sector and the broader economy.

Worried that repayment will undermine partnering?  Doesn’t that seem a bit antithetical?  Foreign and domestic investors are probably far more likely to invest in institutions that are free from federal puppet strings than those that are still firmly attached.  Repayment of the debt shows investors that the institution is making every effort to return to full profitability.  It also shows that it is making enough of a profit to maintain operations AND repay tax dollars.  This would encourage more investment from private sources and help return the financial system to stability.  Keeping the banks tied to the federal government only diminishes the confidence that investors have in these institutions.  Especially with Congress holding populist witch hunts and interfering with board decisions.  Private investors see those actions and steer clear of government strings. 

Then again it might make perfect sense.  If, of course,  you are looking to push out private investment to ensure continued government control of the banking system both here and abroad.  

“We want to be out of the financial system. We want people to be paying back the government. But we don’t want people to be paying back the government in ways that will put themselves right back in trouble and leaving themselves with inadequate capital,” Lawrence Summers, chairman of the president’s National Economic Council, said Sunday on NBC’s “Meet the Press.”

Double speak.  Pure, unadulterated double speak.  Saying in one breath that you want out of the financial system but don’t want borrowers paying you back in the next… double speak.  What Mr. Summers meant to say was “We want to continue to receive dividends from the banks, but we do not want to relinquish our control over the finance industry.”  At least that statement would be accurate.  Because as long as the banks have yet to repay every red cent of the TARP money, the gluttonous Fedzilla  has reason to keep the shares and warrants of said banks.  The longer they can keep the banks dancing to the federal tune, the better.  At least as far as the White House and Congress are concerned.  Even if that means prolonging the pain of this recession and credit crunch.

I hate to say it… but we told you so.

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$2.5 Billion Profit for Treasury

Posted by Max Barron on April 17, 2009

Fresh off of the wire from Fox News

Per Barnes/FBN

Treasury reports receiving $2.5 billion in dividends so far from bank TARP investments, will publish dividend reports monthly — letter

Form the letters to Congress on transparency:

As of today, Treasury had received $2,518,531,260 in dividend payments under the CPP. Going forward, Treasury will begin

publishing these dividend payments on a monthly basis so the American people can see and

evaluate the dividend income they are receiving from these investments. In addition to dividends,

Treasury takes warrants in every institution in which it invests to ensure that taxpayers benefit from

any appreciation in the value of these companies.

Letters posted here: http://www.financialstability.gov/latest/04162009Letters.html

I have numerous questions regarding this $2.5 billion in dividend payments:

  1. Who paid up, specifically?
  2. Did the money come from banks that never asked for bailout money and are seeking to get out from under the government debt?
  3. Where will this money go?  –My theory: Undoubtedly it will find its way back into the coffers of Fedzilla… Not back to the people who fronted the money – Taxpayers.
  4. Will the Treasury relinquish its interests in banks that repay the funds? –I doubt it… Especially if it is profitable and will help forward their domestic agenda.

I also cannot help but wonder how much longer banks and institutions that took, or were forced to take, bailout monies from the government will continue to turn dividends.  If Fedzilla continues attacking those that accepted tax payer money for political purposes, it will continue to chase away the top talent that will turn the banks and companies around (i.e. AIG, BoA, Merryl Lynch).  Many of the major institutions are loosing their top intellectual muscle to start-ups and other firms that didn’t eat at the federal trough.  If Wall Street and top banks continue to hemorrhage their top tier talent to other firms… the firms that we bailed out grow less and less likely to return to profitability — thus losing our investment or forcing us to invest more.   Don’t get me wrong here.  I’m glad that banks and Wall Street firms  are paying dividends, and trying to repay their debt.  Maybe I’m just cynical and jaded, but I highly suspect that not only will the dividends begin to scale down, but also that the Treasury will continue to hold stakes in any and every firm that took money – even if/after it’s paid back.  I also foresee the inevitable collapse of many of these major players due to the loss of their best and brightest through political pressures.

I’ll continue to monitor and update this as I get answers to my questions and find new information.

UPDATE: I attempted to contact the Department of Treasury via both the general information line and the media phone line.  The person who answered General Information told me that my inquiry needed to be made to the Public Affairs office.  PA basically gave me the cold shoulder.  I will attempt to contact them again tomorrow.  As a tax payer I have a right to know who has paid back what amount of my money.

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Gov’t capping CEO Paychecks?

Posted by Max Barron on February 4, 2009

It has been said a dozen times here and elsewhere, that any opportunity the federal government has to reach in and regulate a free market, will be taken and with all due haste.  This is just another example of the type of knee-jerk reactions that we can expect from the over-simplified economic view of our legislators and new President.  Recently, the federal government (President Obama and Congress) have called for legislation to limit the salaries and bonuses of executives in bailed-out banks and Wall Street firms.  They have decided, in their infinite ignorance, to limit the salaries of said executives at $500,000.00, as they consider it unconscionable for these people to make more while they run a company that is in receivership.

I understand the point of view, and I empathize.  It does not seem right that a CEO or other executive be paid millions of dollars salary and millions more in bonuses while they are accepting tax dollars to prop up their companies.  In order to stem the so-called greedy behaviors of such executives, the liberals in Congress and President Obama have called for salary caps.  There in lies the numerous rubs. 

  1. The government should NEVER be imposing wage and salary limitations on private enterprise.  As with every other “power” granted to the government, it will inevitably expand beyond that of companies in receivership.
  2. By setting a salary cap, the government then ensures that the best-of-the-best executives will not take or keep jobs at firms in receivership.  This in turn diminishes the chances that the company will return to profitability (at least in the foreseeable future), and pay back the tax payer money.
  3. By diminishing the entity’s ability to pay back the funds, the government ensures that the company remains in receivership for longer, and thus allows the government to maintain control of the company and in all likelihood expand their control.
  4. Class warfare.

It is extremely important to note that by capping the salaries of executives, the effective potential of the company is limited.  This is because the best and brightest, the “winners”, will not take a pay cut (especially to the tune of millions) in order to return a company to profitability.  This means that either the current, and in several cases worthless, executives will remain in place while the propped up company spirals even farther into the ground.  It also means that many boards will be unable to replace executives with those talented and dedicated enough to return the company to profitability.  They will instead be forced to hire / keep executives that are inferior but willing to accept the pay.  Essentially it’s like telling a NFL team that they cannot draft until the 4th round and they cannot play (or must cut) their starters, and then expecting that team to reach the playoffs.  The government, through compensation limiting, is in fact limiting the return on our dollars.

This is not to say that I believe that these companies should continue the bloated perks or retreats.  It is to say, rather, that the government should not be capping salaries and handicapping private enterprises.  The outrage about many of these CEOs making multi-million dollar salaries and multi-million dollar bonuses is understandable.  I do empathize.  However, sometimes the solution is worse than the problem.  This is one of those times.

UPDATE: Apparently, I am clarevoyant.  It begins.    I hate to say it but – See, I told ya so.

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Roots of Auto Makers’ failure..

Posted by Max Barron on December 27, 2008

With the beggary of the auto makers and subsequent bailout using TARP funds, courtesy of Pres. Bush, the auto makers have drawn a considerable amount of public attention.  With that a lot of public ire as well.  The question is, is that ire pointed in the right direction?  I have heard a lot of belly-aching over the mismanagement of the companies by the the executives.  Are they to blame?  They certainly played a roll.  Though I am of the opinion that they may have been able to fix their own mistakes if there were no other factors involved.  I’ve seen many in the pundit circles heave the lion’s share of blame on the UAW.  I can’t say that I totally disagree there.  However, the UAW with all of its faults, is not the root cause.  I am the type of person that always looks for the underlying root cause of things.  You can treat symptoms until your blue in the face and they’ll keep coming back.  If you find the illness and treat it… the symptoms go away by proxy.  The same thing applies here with the auto industry.  The root cause needs to be identified and fixed.  Or no amount of bailouts or concessions will return these companies to full viability.  So, what is the root cause, you ask?

Like almost everything else that goes awry in the free market world… The Government!  That’s right, the U.S. Government is the underlying illness of the auto industry.  While this particular side of the Auto Maker’s problem has been spoken of, it hasn’t gotten nearly enough attention.  Ironically, those that have given it the publicity it deserves have been in favor of bailing them out.  Citing that since the government caused the problem they should pony up the dough. (The inherent barrier to this particular argument is that the government has NO money.  They use our money.  We didn’t cause the problem, why should WE pay for it?).  I know, I know, but but but the evil UAW!!  While they certainly are to blame for their fair (and rather large share) of the problem, again, they are not the root cause.  They could not have inflicted the damage that they have, through their own greed, if they didn’t have the backing of members in Congress.  I won’t be going into too much detail regarding the relationship between UAW and Congress.  As I will be covering the relationship between Congress and unions in another post.

Instead I will be focusing the majority of my attention, in this post, on the stifling mandates that were crammed down our auto industry’s throat.  There are so many convoluted and ridiculous mandates that it would take forever and 20 pages to go through them all.  So instead, I will talk about the most inflammatory, ridiculous, obnoxious, fool-hearty, anti-free market mandate of them all.  CAFE standards.  The standards celebrated by our tree-hugging global warming fanatics.  The standards lumped onto the camel’s back with no care for the fact that it left but a straw’s worth of weight in the camel’s carrying capacity.  Now I know the arguments in favor of CAFE.  I know that people think it reduces the amount of pollution we expel into our environment.  It helps save us from ourselves.  If you want to know what I think about that, read here.  But before I move on allow me to dispel a myth here.  CAFE reduces nothing in the way of pollution.  I know, I know, “those standards increase fuel economy and therefore we use less fuel and pollute less”.  While CAFE may FORCE companies to increase fuel economy it does not actually reduce the amount of fuel consumed or pollution expelled from vehicles.  Studies have shown that since our vehicles get better mileage… we simply drive more and drive them further than before.  Thus using MORE fuel and pushing more pollution out of our exhaust pipes.  Essentially CAFE does more harm than good for the environment.

Moving on.  What happened here is once again Congress, in their infinite ignorance, dipped their hands into the free market and muddled things up.  How are CAFE standards and mandates tinkering with the free market?  Simple.  In a free market the consumer decides the fate of a company.  We do this with our purchasing power by purchasing the items that we want or need.  If enough people purchase an item from a company… that company’s competitors will most likely begin producing that product (or they likely will fail).  Other companies will begin trying to improve upon the products that their competitors are producing in order to gain market share.  That is how free market works (yes I am over simplifying it a bit).  You and I, the consumer, control what products and companies succeed or fail.  What Congress did, in essence, was decide by mandate what you and I get to buy.  They did this by forcing our auto manufacturers to change not just their product lines, but also the way that they are produced.  Aside from the initial cost of retooling all of their plants they also had the added cost of redesigning their fleets.  In order to keep the already rising cost (thanks, UAW) to purchase their products down they had to start skimping on the quality materials.  They had to make vehicles lighter or heavier to meet the fuel efficiency marks set by CAFE.  The extra costs from this are also rolled into the price.  (Keep in mind that none of this was due to consumer demand.  We were still demanding what they already made.)

Price is tertiary to my main point though.  To illustrate my main point let’s look at GM.  When you think GM, what do you (or did you – pre-bailout) think of?  TRUCKS, big-freakin’-trucks & SUVs.  That is what they are known for because that is what they do best.  What’s the number one stolen vehicle in the US? The Hummer and the Escalade.  Both GM SUVs.  Their failure has nothing to do with people not wanting their products.  Clearly they do.  While GM makes a few good cars (most notably the Corvette and Impala) that isn’t their strong suit. People don’t want GM cars.  People want GM trucks… but they want them to be GM trucks.  Not Tonka toys.  They want that quality steel-frame, the metal paneling, the high-torque engine.  People want big safe SUVs and trucks.  GM can’t make those anymore.  They’ve had to trim that out to meet government mandates.  No more fully metal body on that pickup.  No more overhaul engines.  GM is being forced to make crap that we don’t actually want.  Why would I buy a GM truck that looks and feels like a Honda, when I can buy the Honda truck for less?

Many people are also not aware that cars cost about as much as a truck to make.  However, people expect cars to cheap.  Trucks have the luxury of having a much higher purchase price ceiling than the econoboxes. Anyone who has ever traded in upside down before knows that the higher the price of the car being traded on, the more wiggle room you have to hide the negative balance of your trade-in.  The same rule holds true for production costs.  GM can hide a lot more of the production costs in a truck than it can in a car.  Due to the higher cost of production for GM (versus, say, Honda) they have to essentially sell their cars at a loss.  So GM rolls that cost into their trucks.  So the trucks and SUVs get the roll-up from higher production costs and the negative selling of their cars.  On top of the fact that in order to cut production costs they have had trim back on the features in their vehicles. Don’t get me wrong.  GM has done some great things with their features considering the little room that they have to play.

Couple this with the political pressure to cut out GM’s bread and butter products (trucks and SUVs) and the exorbitant gas prices for the last few years and you have a failure stew simmering.  The last few years of extremely high gas prices have sent would be buyers of trucks over to the Prius.  It was the final straw.  However, I maintain that this would not have been a problem if the government had stayed out of the mix.  You see, if people wanted nothing but cheap and fuel efficient cars, GM & Chrysler would have killed off their other programs and gone over to cars on their own… or have simply perished.  The companies follow our demands as long as the government isn’t forcing them down a different path.  We demand big, safe, quality trucks and SUVs.  Let the company meet the laws of supply and demand… instead of perverting the supply in order to shift demand.  The political powers that be want us all driving econoboxes so that they can feel better about themselves.  So they force companies like GM to only make the junk that we don’t want (little POS econoboxes).  This in turn kills off viable supply of what we want, therefore; demand shifts to other products.  The trouble is that there are no products that we demand.  We are forced to purchase what we don’t “want”.  If I have to buy an econobox, chances are high that I will go with a company that makes them better than the others at a price that I like.  None of the Big 3 are on that list and due to mandates and the UAW simply they can’t be.

So there you have it.  If you want to point fingers… make sure they are aimed at Capitol Hill.  While there may be many factors that have contributed to the downfall of our auto industry, the government is the source of the biggest ones.  From their undying affection for the UAW to their blitheful machinating against the free market.  From head to toe they wreak from the stench of guilt.  So bend over America.  They stuck it to the Big 3 with their screw-ups.  Now their going to stick it to us for the bill.

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