Clark Griswold has a message for the United States government and the powers that be

January 12, 2009 · Posted in Big Business Ripoffs, Financial Crisis, Government, Thoughts on the economy · 2 Comments 
Merry F'ing Christmas and Happy Holidays - Government A'holes

Merry F'ing Christmas and Happy Holidays - Government A'holes

Clark Griswold had it right on the money, he was not talking about the financial bailout money Congress gave to virtually every bank in the land, but he might as well have been.  I think if Clark was talking about the bailout this is all he would have had to change.

Hey! If any of you are looking for any last-minute gift ideas for me. I have one……..Congress, the President, the Federal Reserve, my leaders, right here tonight.
I want them brought from their happy holiday slumber over there on Pennsylvania Avenue with all the other rich people and I want them brought right here, with a big ribbon on their head, and I want to look them straight in the eyes and I want to tell them what a……..

  • cheap
  • lying
  • no-good
  • rotten
  • four-flushing
  • low-life
  • snake-licking
  • dirt-eating
  • inbred
  • overstuffed
  • ignorant
  • blood-sucking
  • dog-kissing
  • brainless
  • dickless
  • hopeless
  • heartless
  • fat-ass
  • bug-eyed
  • stiff-legged
  • spotty-lipped
  • worm-headed
  • sack of monkey shit…….

……They ARE!  Hallelujah!  Holy shit!  Where’s the Tylenol?

Why you ask would Clark Griswold be so pissed at Congress, the President and the Federal Reserve? Well the answer my friend is blowing in the wind. Yep that really unkind and nasty wind that blows from the backside of the financial world. Here is the story about how your money is being spent, and how grateful everyone is for you spending your hard earned money to keep them in business.

WASHINGTON – It’s something any bank would demand to know before handing out a loan: Where’s the money going?

But after receiving billions in aid from U.S. taxpayers, the nation’s largest banks say they can’t track exactly how they’re spending the money or they simply refuse to discuss it.

“We’ve lent some of it. We’ve not lent some of it. We’ve not given any accounting of, ‘Here’s how we’re doing it,’” said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. “We have not disclosed that to the public. We’re declining to.”

The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what’s the plan for the rest?

None of the banks provided specific answers.

“We’re not providing dollar-in, dollar-out tracking,” said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.

Some banks said they simply didn’t know where the money was going.

“We manage our capital in its aggregate,” said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout.

The answers highlight the secrecy surrounding the Troubled Assets Relief Program, which earmarked $700 billion — about the size of the Netherlands’ economy — to help rescue the financial industry. The Treasury Department has been using the money to buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start lending money.

There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money — not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that’s happening and there are no consequences for banks who don’t comply.

“It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry,” said Elizabeth Warren, the top congressional watchdog overseeing the financial bailout.

But, at least for now, there’s no way for taxpayers to find that out.

Pressured by the Bush administration to approve the money quickly, Congress attached nearly no strings on the $700 billion bailout in October. And the Treasury Department, which doles out the money, never asked banks how it would be spent.

“Those are legitimate questions that should have been asked on Day One,” said Rep. Scott Garrett, R-N.J., a House Financial Services Committee member who opposed the bailout as it was rushed through Congress. “Where is the money going to go to? How is it going to be spent? When are we going to get a record on it?”

Nearly every bank AP questioned — including Citibank and Bank of America, two of the largest recipients of bailout money — responded with generic public relations statements explaining that the money was being used to strengthen balance sheets and continue making loans to ease the credit crisis.

A few banks described company-specific programs, such as JPMorgan Chase’s plan to lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in bailout money allowed the bank to temporarily stop foreclosing on homes.

But no bank provided even the most basic accounting for the federal money.

“We’re choosing not to disclose that,” said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.

Others said the money couldn’t be tracked. Bob Denham, a spokesman for North Carolina-based BB&T Corp., said the bailout money “doesn’t have its own bucket.” But he said taxpayer money wasn’t used in the bank’s recent purchase of a Florida insurance company. Asked how he could be sure, since the money wasn’t being tracked, Denham said the bank would have made that deal regardless.

Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: “We are going to decline to comment on your story.”

Most banks wouldn’t say why they were keeping the details secret.

“We’re not sharing any other details. We’re just not at this time,” said Wendy Walker, a spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the government.

Heine, the New York Mellon Corp. spokesman who said he wouldn’t share spending specifics, added: “I just would prefer if you wouldn’t say that we’re not going to discuss those details.”

The banks which came closest to answering the questions were those, such as U.S. Bancorp and Huntington Bancshares Inc., that only recently received the money and have yet to spend it. But neither provided anything more than a generic summary of how the money would be spent.

Lawmakers say they want to tighten restrictions on the remaining, yet-to-be-released $350 billion block of bailout money before more cash is handed out. Treasury Secretary Henry Paulson said the department is trying to step up its monitoring of bank spending.

“What we’ve been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we’re doing this,” Paulson said at a recent forum in New York. “So we’re building this organization as we’re going.”

Warren, the congressional watchdog appointed by Democrats, said her oversight panel will try to force the banks to say where they’ve spent the money.

“It would take a lot of nerve not to give answers,” she said.

But Warren said she’s surprised she even has to ask.

“If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn’t be in a position where you’re trying to call every recipient and get the basic information that should already be in public documents,” she said.

Garrett, the New Jersey congressman, said the nation might never get a clear answer on where hundreds of billions of dollars went.

“A year or two ago, when we talked about spending $100 million for a bridge to nowhere, that was considered a scandal,” he said.

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An Open Letter to Hank Paulson: Uncertainty & the Banks, What to do now

November 20, 2008 · Posted in Entertainment, Featured, Finance, Financial Crisis, People in the news, Political Issues, Politics, Social Issues, Society, Things to think about, Thoughts on the economy · 4 Comments 

Mr. Paulson:

The capital injections by the Treasury have not done anything to inspire confidence in the banking system by investors or to incentivize banks to start making new loans.

I recognize that it is too much to expect banks to run out and start expanding their balance sheets by writing new loans with so much uncertainty with respect to losses and impact on their capital.

Now that fears are spreading with respect to the commercial real estate market and the consumer loan market, the ability of banks to look at new business is further hampered.

We need to do something decisive and since so many are putting forth ideas, I want to put one out for your consideration.

The problem with the banking system is the continued uncertainty over asset values.  Due to the huge leverage of the banks a small decrease in asset values can blow through ALL of the capital in the banking system including the $125 billion given to the 7 largest banks and billions more given to the smaller banks.

As long as these assets are on their balance sheets, this situation remains unresolved and there is no place to go with these assets.  This is a cancer in the system and must be removed.

The U.S. Treasury is not moving forward with the TARP.  I think this is due to the complexity of the problem as well as the current environment in Congress and I understand your position.

But, with all due respect to you, I do not believe that you can wait and throw this off to the new Administration.

So, where do we go from here? 

I think the U.S. Treasury should convene the largest banks in the country, lock them in a room, with the following mandate:

1) The U.S. Treasury (UST) is going to capitalize a special purpose vehicle (SPV) – a new company – with $100 billion in cash.  UST will own the common stock of the SPV.

2) The banks (I use banks for ease, this could include insurance companies) – are going to contribute $1 trillion of assets to this vehicle with limits for each bank based on size.  The banks and UST will agree on what assets can be contributed and as a group the banks and UST will agree on the value of the assets to be contributed.

The assets that are allowed to be contributed will be broad asset classes, not one-off derivative deals and such.  Commercial mortgages, residential mortgages, consumer loans, large corporate and commercial loans (Shared National Credits, loans broadly held by banks) etc.

The $1 trillion of assets will not be contributed at “market value” nor will it be contributed at “par” value (the original value of the asset).  It will be contributed at a value that reflects the expected recovery of those assets over the life of the assets discounted back to the present (the “Intrinsic Value”).  

3) In addition to the $100 billion of capital injected into the vehicle by the U.S. Treasury the banks will make the following contributions:

a) For each $10 dollars of assets they contribute to the SPV they will contribute $1.00 of common stock.

Combining the $100 billion of cash and the $100 billion of common stock contributed by the participating banks the SPV will end up with $200 billion of capital, which should increase with the stock price of the banks.

b) In addition, the banks will place in escrow $1.00 of common stock for each $10.00 of assets contributed to the SPV.

The stock placed in escrow will be issued to the U.S. Treasury or liquidated at some future date to compensate the U.S. Treasury for any losses from its investment in the SPV and a minimum preferred return.  To the extent recoveries on the SPV exceed the intrinsic value estimate, this is the UST profit on the enterprise and the banks recover the shares placed in escrow.  The shares placed in the SPV are, again, part of the value to the UST from this endeavor.

3) The banks will receive a senior note equal to the value of the assets contributed to the SPC, paying interest at a rate which is equal to the yield on the collective assets of the SPV less operating costs.  The banks will also bear responsibility for providing knowledgeable employees – at their cost – to the SPV to manage these assets.  The SPV will have a Board comprised of respected individuals on a bipartisan basis.

The value in this idea is two fold:

First, by the banks getting a lot of these assets off their balance sheets they reduce the uncertainty in the system which should allow the stock market to re-value the equity based on the core business and not the “unknowns” associated with these assets.

Second, the security which the banks take back from the SPV will be worth more than the value of the loans on their balance sheet.  Consider this hypothetical example:

1) The banks contribute assets, collectively priced by the market at 50% of the par value of the security;

2) A conservative analysis (5% drop in GDP next year and 1.5% growth thereafter, or something like this) suggests that the intrinsic value of the assets is actually 70% of par;

3) The banks contribute these class of securities to the SPV for $1 trillion at the determined 70% “intrinsic value” (the face value contributed will exceed $1 trillion, but the value is greater than the mark to market value);

4) Now let’s say the actual recovery on these securities is $800 billion, the banks hold a senior security on this asset and thus would have first recourse to the $800 billion;

5) The SPV would however have the $100 billion of UST capital and $100 billion (at current market prices) of a portfolio of bank stocks to satisfy the SPV obligations to the banks.

As a result of this structure, the SPV senior securities taken back by the banks would have a tremendous cushion to absorb losses and still be worth par value to the banks which participate.  The break-even recovery in this example is 56% on the original par or face values of the securities contributed.  This should provide considerable ability for the new SPV senior securities on the bank balance sheets to be valued at Par.  This will enhance the asset quality of the banks and likely allow them to mark up asset values on their balance sheets.  

This is how the UST gets the “bang for the buck” that you referenced when you said the TARP could not serve its purpose.

The banks would be healthier as a result of this structure and thus the stock they contribute as capital and to the escrow should be a good store of value.

THE KEY MERIT OF THIS IDEA IS THAT IT REPLACES ILLIQUID ASSETS WHICH NO ONE CAN VALUE WITH A SINGLE ASSET THAT HAS ADDITIONAL SUPPORT AND SHOULD THUS BE WORTH PAR.

The taxpayer is protected by the escrowed stock that the banks contributed to participate.  The escrowed securities first go to compensate the UST dollar for dollar on losses and then up to a preferred rate of return.  Any appreciation in the stocks is split with 50% staying with the UST and the rest returned to the banks.

Since no one will buy bank stocks right now – everyone, I mean everyone who has bought bank stocks in the last two years has been killed – this allows the banks to effectively RECAPITALIZE themselves with some assistance from the UST.

By getting a large part of the troubled assets off the balance sheets of the banks, placing it into a vehicle that is NOT PUBLIC (thus it can sit and hold these securities without concern for the “mark to market” accounting) and replacing those assets with a single security whose credit has been enhanced partly by the UST and partly by the banks themselves, you will dramatically reduce the uncertainty in the banking system.

The banks will still have some troubled assets which due to the unique characteristics of those assets are not appropriate for the SPV.  But the idea here is that by reducing the MAGNITUDE of the problems the banks are facing and enhancing the asset quality of the banks through this program you leave them in a better position to take the write-off on those assets or to work them out themselves.

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