Banks using bailout money to give themselves bonuses
Don Tiberone
WASHINGTON (AP) -- First, the $700 billion rescue for the economy was
about buying devalued mortgage-backed securities from tottering banks
to unclog frozen credit markets.
Then it was about using $250 billion of it to buy stakes in banks. The
idea was that banks would use the money to start making loans again.
But reports surfaced that bankers might instead use the money to buy
other banks, pay dividends, give employees a raise and executives a
bonus, or just sit on it. Insurance companies now want a piece; maybe
automakers, too, even though Congress has approved $25 billion in low-
interest loans for them.
Three weeks after becoming law, and with the first dollar of the $700
billion yet to go out, officials are just beginning to talk about
helping a few strapped homeowners keep the foreclosure wolf from the
door.
As the crisis worsens, the government's reaction keeps changing.
Lawmakers in both parties are starting to gripe that the bailout is
turning out to be far different from what the Bush administration sold
to Congress.
In buying equity stakes in banks, the Treasury has "deviated
significantly from its original course," says Alabama Sen. Richard
Shelby, the top Republican on the Senate Banking, Housing and Urban
Affairs Committee. "We need to examine closely the reason for this
change," said Shelby, who opposed the bailout.
The centerpiece of the Emergency Economic Stabilization Act is the
"troubled asset relief program," or TARP for short. Critics note that
tarps are used to cover things up. The money was to be devoted to
buying "toxic" mortgage-backed securities whose value has fallen in
lockstep with home prices.
But once European governments said they were going into the banking
business, Treasury Secretary Henry Paulson followed suit and diverted
$250 billion to buy stock in healthy banks to spur lending.
Bank executives hinted they might instead use it for acquisitions.
Sen. Christopher Dodd, chairman of the Senate banking committee, said
this development was "beyond troubling."
Sure enough, a day after Dodd, D-Conn., made the comment, the
government confirmed that PNC Financial Services Group Inc. was
approved to receive $7.7 billion in return for company stock. At the
same time, PNC said it was acquiring National City Corp. for $5.58
billion.
"Although there will be some consolidation, that's not the driver
behind this program," Paulson recently told PBS talk show host Charlie
Rose. "The driver is to have our healthy banks be well-capitalized so
that they can play the role they need to play for our country right
now."
Other planned uses of the bailout money have lawmakers protesting,
although it is only fair to note there is nothing in the law that they
just wrote to prevent those uses.
Sen. Charles Schumer, D-N.Y. questioned allowing banks that accept
bailout bucks to continue paying dividends on their common stock.
"There are far better uses of taxpayer dollars than continuing
dividend payments to shareholders," he said.
Schumer, whose constituents include Wall Street bankers, said he also
fears that they might stuff the money "under the proverbial mattress"
rather than make loans.
Neel Kashkari, head of the Treasury's financial stability program,
told Dodd's committee this past week that there are few strings
attached to the capital-infusion program because too many rules would
discourage financial institutions from participating.
As the bank plan has become a priority, the effort to buy troubled
assets has receded from the headlines. Potential conflicts of interest
pose all kinds of problems in finding qualified companies to manage
that program.
"Firms with the relevant financial expertise may also hold assets that
become eligible for sale into the TARP or represent clients who hold
troubled assets," Kashkari said.
The challenge was made plain when the Treasury hired the Bank of New
York Mellon Corp. as "custodian" of the troubled assets purchase
program. The bank will conduct "reverse auctions" to buy the toxic
securities on behalf of the Treasury. The lower the price they set,
the better chance sellers have of getting rid of the devalued
securities.
On the same day it hired Mellon, the Treasury also picked the company
to receive a $3 billion investment as part of the capital-infusion
program. The same bank hired to help manage part of the economic
rescue plan became a beneficiary of it.
With the Nov. 4 election nearing, lawmakers decided it was important
to remind the government officials running the bailout program about
parts of the law aimed at helping distressed homeowners by offering
federal guarantees to mortgages renegotiated down to lower monthly
payments.
"The key to our nation's economic recovery is the recovery of the
housing market," Dodd said. "And the key to recovery of the housing
market is reducing foreclosures."
Sheila Bair, who heads the Federal Deposit Insurance Corp., responded
that her agency is working "closely and creatively" with Treasury
officials to "realize the potential benefits of this authority."
ynotssor
Don Tiberone <s_kn...@my-deja.com> typed:
> But reports surfaced that bankers might instead use the money to buy
> other banks, pay dividends, give employees a raise and executives a
> bonus, or just sit on it. Insurance companies now want a piece; maybe
> automakers, too, even though Congress has approved $25 billion in low-
> interest loans for them.
I wasn't surprised to see the name of the U.S. Treasury official who is in
charge of the bailout ... his name is Neel KashKari.
I wonder if he pronounces it "Cash-Carry"?
Mr Bubble
bf8a-758...@v15g2000hsa.googlegroups.com:
> http://biz.yahoo.com/ap/081025/meltdown_evolving_bailout.html
>
> WASHINGTON (AP) -- First, the $700 billion rescue for the economy was
> about buying devalued mortgage-backed securities from tottering banks
> to unclog frozen credit markets.
>
> Then it was about using $250 billion of it to buy stakes in banks. The
> idea was that banks would use the money to start making loans again.
>
> But reports surfaced that bankers might instead use the money to buy
> other banks, pay dividends, give employees a raise and executives a
> bonus, or just sit on it. Insurance companies now want a piece; maybe
> automakers, too, even though Congress has approved $25 billion in low-
> interest loans for them.
"mission creep"... the premiere tool of scoundrels.