Banks to return $68 billion in bailout money

New York buildings are reflected in the window of a Capital One bank office window. The Treasury Department said Tuesday it will allow 10 of the nation's largest banks to repay $68 billion in government bailout money. (AP File)

Ten of the nation’s biggest financial companies got a green light Tuesday to return $68 billion in federal bailout money — freeing the banks from limits on executive pay and leaving the government with a small gain on the rescue cash.

While the paybacks could be a signal that the banking industry is stabilizing, analysts say it is far from a clean bill of health, and some said it was too soon to let the banks give back the money.

Presidential spokesman Robert Gibbs said the returned money would go “back into general revenue” and could even be used to bail out banks again. (And this seems to be the plan… Many banks have wanted to repay stimulus money before but were not allowed because they weren’t ready… per the administration. But now that people are starting to get fed up and money sources are drying up, they need the money, they will take the pay back and do it all again.

Still, the government has collected $1.8 billion from dividends on shares of preferred stock it received in exchange for bailout money, he said. And the government still holds warrants to buy shares of bank stock at cut-rate prices in the future.

The $68 billion in paybacks would be the largest since the $700 billion Troubled Asset Relief Program took effect eight months ago at the peak of the financial crisis. Specifically, the money comes from a $250 billion slice of the $700 billion bailout package.

Other chunks of the $700 billion will be harder, if not impossible, to recover. Some of it, such as $70 billion funneled to failed insurer American International Group Inc., ended up in the pockets of healthier banks that did deals with AIG.

And even the banks getting out from under the TARP still rely on government support, including debt guarantees from the Federal Deposit Insurance Corp. and credit lines from the Federal Reserve.

The banks chafed under restrictions on executive pay imposed by the government for banks that took bailout cash, arguing they were losing top talent to other firms. The administration is expected to roll out new executive pay rules Wednesday that would apply to banks that still have TARP money.

“It’s our obvious hope that additional money is not going to have to be used to stabilize banks,” Gibbs said. “I certainly wouldn’t rule it out.”

Indeed, banking experts stressed that the payments do not signal an end to the financial crisis. In fact, they say, most banks approved to pay the money back never needed it in the first place.

And three major banks that have not been approved by the government to pay the money back — Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. — could need federal help for years to come.

“When a troubled bank is capable of repaying, that would be significant,” said Barry Ritholtz, head of the financial research firm FusionIQ. “But we’re not going to see that anytime soon because they can’t afford it.”

Among the banks approved to pay back their bailout cash are eight that passed the government “stress test” earlier this year: JPMorgan Chase & Co., American Express Co., Goldman Sachs Group Inc., U.S. Bancorp, Capital One Financial Corp., Bank of New York Mellon Corp., State Street Corp. and BB&T Corp.

Those banks had to show they could raise private capital without federal guarantees before getting permission to pay back TARP money.

Morgan Stanley did not pass the test, but got approval to return its bailout money after quickly raising enough capital. And Northern Trust Corp. did not undergo the “stress test” but said it also had received permission to repay its bailout money.

President Barack Obama welcomed the news but said: “This is not a sign that our troubles are over — far from it.”

Indeed, the repayments carry risk. Some say it could create a banking system of winners and losers, with weaker banks stuck with federal restrictions and finding it harder to compete for customers and talent against rivals that operate more freely.

Others say the repayments could conceal problems in the banking industry. Smaller banks are still saddled with billions in risky commercial real estate loans. And large banks still hold the toxic mortgage-backed assets at the heart of the financial crisis.

Paying the government back leaves banks with less protection against future losses, said Christopher Whalen, managing director of the consulting firm Institutional Risk Analytics. And with less capital on hand, they may have to scale back lending.

Other critics said it was dangerous to allow the money to be paid back before the administration overhauls the regulatory framework that governs banks.

“The credit crisis made it clear that the banks acted in irrational and greedy ways. I don’t believe that enough changes have really happened yet,” said Donald Thomas, an independent research analyst.

Adding to the concerns, a report released Tuesday by the congressional panel overseeing the bailout said the hypothetical scenarios used in the “stress tests” might have been too rosy.

That raises the troubling possibility that even raising enough capital to satisfy the government won’t guarantee banks can withstand a deeper recession. And that means the banks might have to seek more federal aid.

Citi and Bank of America, two of the most troubled financial institutions, have taken $45 billion each in bailout money. Wells Fargo said it has not asked for permission to pay back $25 billion in TARP money.

Banking analyst Bert Ely said it could be years before those banks disentangle themselves from the government.

More than 600 banks have received a total of almost $200 billion from the TARP, and 22 smaller banks have already paid the money back. The $1.8 billion in dividend money includes stock the government owned in these smaller banks.

Besides the preferred-stock dividends, the banks that took bailout money issued warrants that give the government the right to buy bank stock at a fixed price later. Bank stocks have been battered but are expected to rise as the economy recovers, so the warrants could deliver substantial profits to taxpayers.

Or the government could sell the warrants back to the banks “at fair market value,” the Treasury Department said — presumably also locking in profits for the taxpayers.

Testifying before a Senate panel, Treasury Secretary Timothy Geithner said the value of the warrants for banks permitted to repay TARP funds are in the “several billion dollar range.”

But it sounds like Secretary Geithner’s understanding might not always be right on…~ Geithner said, after his visit to China that “the Chinese have justifiable confidence in our economy”. Yet other reports, including from Illinois Congressman Kirk, say that China is very uneasy and concerned about the U.S. economy. A telling moment was when a round of laughter broke out as Tim Geithner was speaking in China and said “your investments are secure”; the rudeness of laughing at someone virtually never happens in China. M~

By: Stevenson Jacobs and Daniel Wagner - Associated Press
06/09/09 7:44 PM EDT

This week we will be selling treasury bonds (T-bills). The question is who will buy them… Who wants to luck up their money our future for 30-years? Who buys those bills could make a huge difference in all our lives!

Related Articles:

• House Passes Cash For Clunkers Bill
• Reagan Didn't Do It

Posted: Knowledge Creates Power

Forrest Gump Explains The Banking Mess

Mortgage Backed Securities are like boxes of chocolates. Criminals on Wall Street stole a few chocolates from the boxes and replaced them with turds. Their criminal buddies at Standard & Poor rated these boxes AAA Investment Grade chocolates. These boxes were then sold all over the world to investors. Eventually somebody bites into a turd and discovers the crime. Suddenly nobody trusts American chocolates anymore worldwide.

Hank Paulson now wants the American taxpayers to buy up and hold all these boxes of turd-infested chocolates for $700 billion dollars until the market for turds returns to normal. Meanwhile, Hank’s buddies, the Wall Street criminals who stole all the good chocolates are not being investigated, arrested, or indicted.

Mama always said: ‘Sniff the chocolates first, Forrest’.

Quote of the day from a fund manager:

“This is worse than a divorce… I’ve lost half of my net worth and I still have my wife…”

The bailout–a different perspective:

Back in 1990, the Government seized the Mustang Ranch brothel in Nevada for tax evasion and, as required by law, tried to run it. They failed and it closed. Now we are trusting the economy of our country to a pack of nit-wits who couldn’t make money running a whore house and selling booze?

Posted in Banking, Nationalization, politics at 9:11 am by Administrator - 01.20.09

Permalink

Bankruptcy, Not Bailout

by Newt Gingrich

"Outrage" is the word on everyone's lips to describe the fat bonuses being paid with taxpayer funds to the failed executives at AIG - and it is an outrage.
It's an outrage that the American people are being asked to pay for the bad behavior of people who should have known better, be they reckless traders on Wall Street or reckless borrowers on Main Street.

But the cure for our outrage is not merely, as President Obama is demanding, that AIG be prevented from paying its executives. The $165 million in planned bonuses - as manifestly undeserved as it is - is chicken feed compared to the $170 billion in taxpayer funds AIG has received so far.

Nor is it acceptable to ask Americans to keep throwing their tax dollars at failed companies and their leaders.

The answer is an old fashioned one: AIG should choose between receivership or bankruptcy. It should not be allowed to choose more bailouts from the taxpayer.

Restore the Rule of Law: Allow Failing Corporations to go Bankrupt

Under U.S. law, Chapter 11 bankruptcy allows a company to reorganize. Chapter 7 allows a company to dissolve itself.

The choices for AIG, as both an insurance and non-insurance company, are more complicated, but ultimately boil down to the same options. And for other companies either receiving or looking to receive a bailout from the taxpayers, the option should instead be bankruptcy.

Bankruptcy would send a needed message to U.S. investors: Don't assume the government will bail you out when you do something stupid.

And most importantly, bankruptcy would replace the rule of politicians over U.S. financial institutions with the rule of law.

Geithner Didn't Inherit the Policy of Throwing Billions at Failing Companies - He Helped Create It

Because when it comes to Washington's handling of the financial crisis, so far we've had the rule of politicians, not the rule of law.

Most prominent among the politicians in question is Treasury Secretary Timothy Geithner.

As Americans' level of outraged has risen, so has the level of finger pointing by Geithner and others for the mess we're in.

But Treasury Secretary Geithner is disingenuous at best and untruthful at worst when he says that he "inherited the worst fiscal situation in American history."

The truth is that Secretary Geithner didn't inherit the policy of throwing billions of taxpayer dollars at failing companies - he helped create it.

Even before he was Treasury Secretary - when he was still head of the New York Federal Reserve - Geithner was so deeply involved in the government's bail out of Bear Stearns, its take over of Fannie Mae and Freddie Mac, and its bailout of AIG that this was the Washington Post's headline from September 19, 2008:  "In the Crucible of Crisis, Paulson, Bernanke and Geithner Forge a Committee of Three".

The first meeting of the first bailout - of Bear Stearns - was held in Geithner's office. And the first meeting of what has become a $170 billion bailout of AIG was held - where else? In Geithner's New York Fed office.

Why Not Bankruptcy for AIG? Because Wall Street Wouldn't Have Done As Well

From the outset, Geithner was central to the developing policy of having the taxpayers bail out ailing financial institutions like AIG rather then allow them to go bankrupt. And for months now, we've been told that these bailouts were necessary to avoid a wider, cataclysmic, financial meltdown.

But now it's clear that other, less noble, considerations were at play.  As the Wall Street Journal editorialized yesterday, the real outrage over the AIG bailout isn't executive bonuses, it's that billions in taxpayer funds intended for AIG have been passed through to benefit foreign banks and Wall Street behemoths like Goldman Sachs.

And as former AIG CEO Hank Greenburg testified last October, these financial institutions wouldn't have faired as well if AIG had filed for bankruptcy protection rather than do what it did, which was to negotiate a bailout with Timothy Geithner's New York Federal Reserve.

Here's how Greenburg put it:

"Although AIG stockholders could have fared better if the company had filed for bankruptcy protection, other stakeholders - like AIG's Wall Street counterparties in swaps and other transactions - would have fared worse."

For the Cost of Bailing Out AIG, Every American Household Could Have Free Electricity For a Year

So now everyone is outraged, and rightly so. But the lavish executive bonuses being paid with taxpayer funds are just the beginning of the story.

So far, the American taxpayers are on the hook for $170 billion to AIG - that's an astounding $1,224 per taxpayer.

What else could we have done with all this money?
$170 billion would pay for more than doubling the Navy's fleet of aircraft carriers.

$170 billion would pay for a four-year education at a public university for more then two million Americans.

$170 billion would cover the electricity bill of every household in America for an entire year.

When You Reward Failure, All You Get is More Failure

What Washington should learn from all this outrage is to return to the common sense that should have guided it all along: When you reward failure, all you get it more failure.

A company that needs a $170 billion taxpayer bailout is a failed company. The executives that led that company are failed executives. But instead of having to face the consequences of their failure responsibly through bankruptcy or receivership, AIG and its Wall Street "counterparties" are being rewarded for their recklessness - with our money.

Thanks to the Bush-Obama-Geithner policy of bailing out failing companies, we now have the worst of all possible scenarios: A taxpayer subsidized, government supervised private company; an unsustainable public/private hybrid that is too public to make its own decisions and too private to be responsible to the taxpayers that are keeping it alive.

Outrages like the fat cat bonuses currently dominating the headlines will only continue as long as the rule of politicians supplants the rule of law on Wall Street.

Congress should rethink this entire process. The dangers of a domino-like financial meltdown are real. But so, too, is the danger that the outrage of the American people will reach the point that we no longer trust the dire warnings - or the righteous indignation - coming from Washington.

  Your friend,

   Newt Gingrich

P.S. -- Historian William Forstchen and I have collaborated on many different works of historical fiction. I'm proud to announce that Bill has a new novel out, called One Second After. It's a fascinating and disturbing account of what America would be like in the aftermath of an electro magnetic pulse (EMP) attack. Like everything Bill does, One Second After expertly combines human drama and geopolitical reality for a fictional look at what could be an all-too-real future.

75 in Congress Demand No Stimulus for Illegals

Seventy-five members of Congress asked House leaders on Tuesday to shut down a loophole allowing billions in economic stimulus funds to go to some 300,000 construction workers who are in the country illegally.

“I believe that this figure may be low,” Rep. Cliff Stearns, R-Fla., tells Newsmax. Stearns adds, “We owe it to the American workers and to American taxpayers to ensure that their money does not go to employ workers in our country illegally.”

The House version of the $787 billion stimulus package signed by President Obama included a requirement that the legal residency of all employees hired through stimulus spending be verified. As Newsmax reported Monday, that provision was mysteriously stripped from the legislation before it went to the conference committee that reconciled the House and Senate versions of the legislation.

On Tuesday, 75 representatives from both sides of the aisle sent a letter to House Speaker Nancy Pelosi and Minority Leader John Boehner, urging them “to protect taxpayers and legal workers by including these critical jobs protection provisions in any future economic recovery legislation.”

Steven Camarota, director of research for the Center for Immigration Studies (CIS), agrees with Rep. Stearns that the actual number of illegals hired by the stimulus funds may be much higher.

That’s because the 300,000 figure applies only to the construction portion of the $787 billion stimulus package. Spending in that sector is expected to generate about 2 million jobs, and illegal workers comprise about 15 percent of the construction workforce.

At least another 1 million non-construction jobs are expected to be generated by stimulus spending. Because about 5 percent of the overall U.S. workforce consists of illegal workers, that would be another 50,000 jobs that “could be” going to illegals, Camarota tells Newsmax.

The economic impact of hiring illegals clearly runs counter to the objectives of the stimulus, experts agree. That’s because each year, illegal workers send tens of billions of dollars earned in the United States to their home countries in the form of “remittances.”

“The fact that illegal aliens send a substantial portion of their earnings abroad reduces the stimulus effect that their employment has inside the United States,” says Robert Rector, senior research fellow with the Heritage Foundation. He adds, “It’s outrageous that in a bill designed to provide employment for Americans, Congress has deliberately chosen to allow jobs to be given to illegal immigrants.”

It remains unclear who scrubbed the verification provision from the House-Senate compromise bill. Pelosi, Sen. Majority Leader Harry Reid, and President Obama are three possibilities who have been mentioned.

“It was somebody high up in the Democratic Party,” Rector tells Newsmax. “We don’t know who it was beyond that.”

A marriage of convenience between pro-immigrant lobbyists and businesses seeking cheap labor helped torpedo the verification requirement.

Rector says eliminating verification without a public debate on the matter simply reflects the way the overall legislation was pushed through Congress. “The stimulus bill was the worst case of special-interest lobbying and secrecy that I have seen in Washington in a quarter of a century,” he says. “It was very clear that they rushed that bill through as rapidly as they possibly could because they did not want the American public to understand what was in the so-called stimulus bill.”

The oversight is beginning to draw fire from other quarters as well. In North Carolina, state legislators have introduced legislation that would require all state contractors receiving federal funds to verify workers’ residency.

Some commentators are protesting the stimulus loophole as well. CNN’s curmudgeonly Jack Cafferty, for example, remarked with his characteristic vim: “This recession/depression isn’t that bad and unemployment is only at 8.1 percent and we’ve only lost 4.4 million jobs in the last 15 months. What’s wrong with giving a few hundred thousand jobs away to people who shouldn’t even be in the country in the first place? This is your government at work.”

By: David A. Patten © 2009 Newsmax, Tuesday, March 10, 2009 5:49 PM

In the end the bill passed without e-verify, by one vote...