A Word About Banks and Stimulus
Last Sunday's edition of The Milwaukee Journal Sentinel published a lengthy article about a local bank's efforts to work through its woes. I found it an interesting read, and thought I would offer a perspective from the business community. My comments speak to the U.S. banking industry in general over the course of the last year, and it is only fair to note that there are certainly shining exceptions to this story.
What most banks did with the billions of Federally provided largesse was to immediately shore up their horrifically unbalanced balance sheets. Those statements became so unbalanced through the combination of years of an overly easy Fed and a Bachnalian orgy of lending; lending which forsook all of the time-honored principles of this once proud and conservative industry. You know - things like collateral and down payments and equity to debt ratios that had a toe-hold in reality. What the banks have NOT done is put the money "to work". In fact, many of them went out of the business of LOANING money and into the business of COLLECTING it, while at the same time increasing interest rates to long standing customers at a time those clients were fighting for their very existence. This continues to a large extent today.
THAT is what most banks have done with the money Congress so eagerly gave them at the start of 2009. And they are now engaging to the extreme the very tools and practices that might have prevented this meltdown in the first place.
It is a sad drama that has not played well in our local business community. Already we see the formation of smaller, better capitalized banks, many of which have started or been strengthened by capital that now eschews the "big boys". Such institutions are well positioned, and when the economic worm has sufficiently turned, many long-standing client/bank relationships will be turned on their ear.
Even here in little old Waukesha County.
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Funny Cindy, Yep, I caught on like Stephen Colbert! ;)
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Thanks, Ray. I would clarify that I didn't say "all banks". In paragraph one I noted there have been "shining exceptions". But in working with business peolpe across many different insudstries and who are clients of many different sizes and types of banks, I stand by the general point I have made. Thanks again
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Your generalizations of "all banks" not putting the money to work brings back the main street vs. wall street mentality. Some banks remain very strong and continued to loan out money. Some, taking the TARP money, paid it back (with interest to us the taypayer) because it gave them a bad name, 1 exec. even calling is a scarlet letter.
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Mikeyd, it's about time you caught on. ;)
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There is a happy ending to this story though.
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Kyle - I was not clear enough, perhaps. I fault the Greenspan led Fed for a ridiculously long period of discount rates that were far too low. And I fault Congress for a faulty stimulus package. But M&I is in trouble for one reason only - because it sought and approved a sea of bad loans. The same is true for most of the private banks.
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Hi Tom, interesting subject that has been beat to death and still lingers on because of the poor handleing being done by this administration. I do business with some local banks that never got sucked into this mess by just using some of the old time logic of lending money that some banks dumped in the hope of lossing money by volume lending .
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Scott,
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Elf - Tis your busiest time of year, and I am humbled you took the time to read and comment. I hope the banks have provided Santa's work shop with the financing and liquidity it undoubtedly needs during this Season. Merry Christmas to you and everyone at the Pole.
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Gee Tom, your blogs certainly generate a lot of rancor!
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Load more comments View all comments Back to topmikeyd - Dec 14, 2009 12:47 PM - Report Abuse
By the way, Great job on holding up the content from the 'Unity blog' in your end of the blogosphere! thanks!
Tom G - Dec 13, 2009 6:07 AM - Report Abuse
ray ganomic1 - Dec 12, 2009 8:22 PM - Report Abuse
Cindy K - Dec 12, 2009 1:25 PM - Report Abuse
mikeyd - Dec 11, 2009 10:43 AM - Report Abuse
No one has mentioned that CitiBank, the last bank that did not yet pay back most of the loans, is organizing to do so this week.
One of the links is from Fox, so you KNOW it is all true, fair, and balanced.
http://www.foxbusiness.com/story/citigroup-pay-tarp-money-report/
http://money.cnn.com/2009/06/09/news/companies/banks_tarp/index.htm
Tom G - Dec 05, 2009 10:54 AM - Report Abuse
Nail Bender - Dec 05, 2009 9:45 AM - Report Abuse
You mention the start up of new banks, another tough subject. Those banks that used good lending policy and those that are starting up now get throttled with the insurance premiums that are to pay for the failing banks and those that received the bail out funds. What does this do??.. Makes it hard for them to do business in a profitable manor. The margins of profit now are so slim in lending that anyone (Banks other lenders) that does not use strict guide lines will get sucked down the financial sewer.
One of our local banks, M & I is pushing off foreclosures to make their bottom line look better. Death down the road on a very slippery highway.
Alderman Berg, I always appreciate your straight forward comments. Sometimes the truth hurts, I hear screaming in the back round. Thank you.
Kyle Prast - Dec 05, 2009 9:44 AM - Report Abuse
Bank employees are not paid solely by taxpayers. True, they got some money, a loan, from taxpayers (thanks for the reminder, Cindy, and the comment about never eating steak again), but the majority of their salary comes from profit. Yes, I think they are entitled to their usual Christmas party!
If you recall, in Oct 2008, some banks were forced to take the bailout--couldn't leave the room until they signed on--even when they were not in need. Now those bank employees, some who make well under $50,000 a year have their year end bonus at risk (bonus in lieu of raise) because of Washington's interference. That is not right.
Tom's whole point in this post was that government interference got the banks into this mess by forcing them to make unsecured loans in the first place. I was just interjecting a seasonal note into the bailout fiasco.
Tom G - Dec 05, 2009 4:32 AM - Report Abuse
Santas Elf - Dec 04, 2009 5:41 PM - Report Abuse
With regard to the Christmas party debate, we old timers not only miss the Christmas party, we miss Christmas dinner as well. Those perks are only for those who can afford them.
On the other hand, among those of us who want Him, we still have Christ as our hope.
And nothing tops that!
Merry Christmas to all.