How is that for making the top "Duh" statement for 2009?
The Troubled Assets Relief Program was supposed to save the American banking system from impending doom, by infusing banks with capital. Most Americans don't really care how a bank is run, as long as they get a good interest rate, or enough money to buy a house or refinance their credit card debt. We woke up last year when we started losing our jobs and not being able to make the minimum payments anymore.
I've been out of work before and I've had financial problems before. Some of that was of my own doing and some were forces beyond my control. I pray a little, ask friends and family for some help, take an extra job, cut back on expenses and usually I'm back on my feet in a short time. I can deal that.
But what has Joe the Plumber and Bob the Builder up in arms is hearing the sniffling by highly paid executives that they are not getting their million dollar bonuses. Where I live there are a dozen counties with unemployment over 10%. If you want to see the future of car making in this country, I can show you the Studebaker Museum. It's pretty, but I don't see any more Studebakers being built in South Bend. People have friends who are losing real jobs here. There is no sympathy for corporate bonuses when I read stories about shortages at the local food bank.
There is another $350 billion of the TARP left to go. I don't think most people care about the "Good vs. Bad Bank" plan or if the money is used to buy preferred shares. That's noise to most people. If it creates jobs or saves the job I have, then maybe it's worth it. I can't tell from where I sit, hunched over my laptop. My sincere hope is that it's spent well, or not at all.
I'm a captive investor in bad companies, thanks to Uncle Sam. And I'm tweaked. I've seen my mutual funds lose 40% of their value this past year. I told my senators and congressman not to do it, and they did anyway. It's against the law for my broker to place a trade without my permission, but apparently the Treasury is exempted. There's a good chance they're going to do it again with the $900 billion Stimulus Package.
Companies that have announced bonuses and received TARP funds are spinning. Hampton Roads paid out $925,000 in bonuses to two former executives the same day that it had received $$80.3 million of the TARP. When you read more into the story, it was part of an on-going merger activity with another company, which was totally unrelated to the parent company's lending activities. Relative to their peers and their performance, this would not be an outrageous amount. Under a new TARP plan, they might still have received a bonus, but not quite as much.
Yet, that's the problem with using public money to support privately operated businesses. Once a business starts getting taxpayer money, it now has to bow to its new owners. It's like a sculptor being forced to use part of his precious marble supply to make an image of his patron's homely loved one. It's going to cramp the artist's style.
By imposing new rules on the TARP money, it's going to do the other thing that taxpayers want: getting their money back. Much of the first TARP money was used to buy preferred shares in the largest banks. That comes with a dividend rate that turns punitive if it isn't paid back on time. If the bank goes out of business, the common shareholders would get wiped out, in theory. The new rules will put caps on executive pay and stop performance recognition events. The salary and bonus restrictions will hurt quicker than tinkering with an interest rate.
The reason why anyone goes to Harvard Business School for an MBA is to MAKE MONEY. Dillinger robbed banks, because that is where the money is. However, it's a really bad relations move to take my money and go to Las Vegas, Wells Fargo.
I want the next bank president to think twice about taking a dime of the TARP or any government money. If it affects them personally, they're not going touch it. And I think some of them have realized that's probably going to happen.
One story recently gave me some hope. I do my banking with Chase. The CEO James Dimon recently bought 500,000 shares of JP Morgan Chase at about $22 per share. (The cynic in me is going to look later if these were an exercise of low priced stock options, or if he really believes in his bank!). He seems to be doing the right thing with his TARP money. In an interview last month, he said that his bank has lent $150 billion in the last 90 days and $50 billion to other banks. It had received $75 billion in TARP fund. Its overall lending is down. I'm watching my bank pretty closely these days.
My hope for Chase and the other banks, when the next round of TARP happens, is that they will say to the government, "Thanks, but no thanks. Here are your billions back. We're fine. See ya!"
©2009 Bob Nightingale, all rights reserved. You must have written permission from the author in order to republish this work.
Published: Wednesday, February 4, 2009
Last modified: Wednesday, February 4, 2009
The views expressed in this article are those of Bob Nightingale only and do not represent the views of Nolan Chart, LLC or its affiliates. Bob Nightingale is solely responsible for the contents of this article and is not an employee or otherwise affiliated with Nolan Chart, LLC in his/her role as a columnist.
Report violation by Bob Nightingale of Nolan Chart LLC's terms of use policy.
| More Articles By Bob Nightingale |
Reader Comments: