
The reason why banks are suddenly repaying their bailout funds - cwan
http://www.slate.com/id/2238993/?from=rss
======
MikeCapone
Isn't there a kind of catch 22 going on in the media with regards to banks
these days?

If they pay back (with interest), they're bad guys because they just want to
get the government off their backs (what would you do if you were them?).

If they don't pay back, they're bad guys because they took money from the
government and that hasn't somehow turned them into "nice" banks that lend to
whoever you'd want them to lend to.

Don't get me wrong, there are a lot of shady characters involved in this
story. But it still seems like a case of damned if you do, damned if you
don't.

~~~
codexon
The point is that many of them including Goldman Sachs would have collapsed
outright without the bailout money. Now that the funds gave them enough
liquidity to survive the crisis, they were given money to increase the cash
flow in a depressed markets: the crucial role that banks play in society.

Instead of doing this, they decided to use the money to pay their employees
gigantic bonuses, or by using it to acquire smaller banks that didn't get TARP
money. The banks even pumped several hundred million dollars into lobbying.

This is a clear abuse of the system and the only reason more people aren't
angry about what's happening is because they don't know something like this is
happening.

~~~
gaius
GS had already arranged to be "bailed out" by Warren Buffett. They took the
TARP money because the government made it mandatory to do so (so banks that
needed it wouldn't be seen as weak in the marketplace). They simply sat on it,
then repaid it with interest (20% APR, how likely is the government to get
that from the bond market?!).

There is a paradox here: banks were simultaneously supposed to a) increase
their lending and b) increase their capital reserves. Those two are mutually
contradictory, and the banks chose b.

I'm not saying that TARP wasn't abused at all, but I will say that it
presented an enormous moral hazard. Also here in the UK, the government _knew_
that the state of Lloyds was far worse that it was, and didn't tell anyone
'til the risk had been transfered to the market... If a bank did that, people
would be going to jail for insider trading.

~~~
codexon
_GS had already arranged to be "bailed out" by Warren Buffett. They took the
TARP money because the government made it mandatory to do so (so banks that
needed it wouldn't be seen as weak in the marketplace). They simply sat on it,
then repaid it with interest_

Warren Buffet only invested $5 billion into GS. Look at their cash flow here:
[http://www.google.com/finance?q=NYSE:GS&fstype=ii](http://www.google.com/finance?q=NYSE:GS&fstype=ii)

$5 billion is peanuts compared to the amount of money being lost during that
period, but of course it is impossible for outsiders to tell for sure if GS
needed the TARP money, there were strong signs that say yes.

------
seldo
The problem is that the only thing TARP is good at motivating banks to do is
get the hell out of TARP so they can get back to taking outrageous risks, now
even safer in the knowledge that if it all goes south the US taxpayer will
bail them out rather than destroy the economy.

The banks should not be allowed to leave TARP. As long as these banks continue
to enjoy an implicit government guarantee, the government should maintain its
stake, and its say, in the running of those banks. If they want to stop being
under the control of the government, they need to split themselves into
entities that are Small Enough To Fail.

~~~
patio11
Banks should be Small Enough To Fail. They should also have compliance
divisions the size of entire corporations. They should charge reasonable rates
of interest. They should also offer money to good customers for free. They
need to stop charging so many late and overdraft fees. They should offer free
checking. They should revise any policy which has a disparate impact on
minorities. They should stop giving out risky mortgages to people who are
going to default on them. They should stop relying so much on impersonal
credit scoring and have more humans in the loop. They should return credit
decisions in under a minute at 3 AM in the morning. They should have customer
service employees who speak proper English and can actually help with issues.
They should be glad to get a phone call from a $100 a year account at 3 AM in
the morning. They should do more to protect customers from fraud. They should
stop freezing the accounts of perfectly innocent people.

I am so glad I am not a bank.

~~~
BearOfNH
It took a while, but I finally detected the sarcasm above.

I am not making this up: Just yesterday I went to reorder checks on-line, and
got told "FAIL" and to contact my bank. So I called the main branch in this
state and a human being answered. I told her my tale and she said she could
help me right then, which she did. Are banks again serving (as opposed to
"servicing") their customers?

------
Maro
"Bankers, especially investment bankers, aren't interested particularly in
long-term shareholder returns or even in providing capital to businesses.
They're interested making money and getting paid. If you want to do God's
work, you don't work at a bank.."

vs.

"Bank of America ... raised $20 billion from the public" and "Citi raised
$20.5 billion of capital..."

How do they raise so much capital if the investors know that it's just to
change their TARP structure to enable the execs to get high bonuses?

~~~
djcapelis
Probably because investors aren't that rational after all and don't really
care _why_ the offering came out.

------
herdrick
So who is buying all these banks' assets? (Assets = money owed to these banks,
like loans, credit card balances, etc.) Wells Fargo's news release didn't say.

------
kevinholesh
I don't like it when they say "$90 billion in repayments to the taxpayers in a
week"

That makes it seem like us taxpayers will actually see some of that money as a
return, but we never will.

~~~
pmorici
With an 11 trillion dollar debt it was never ours to begin with.

~~~
Calamitous
It _was_ ours to begin with, but with an 11 trillion dollar debt, we'll just
never get it back.

------
davi
I was hoping for better reporting when I saw this post. The article didn't
show a causal link between regulating bonuses and the payback, it showed
correlation:

"The investment banks that were capable of paying back did so in June, the
month when lawyer Kenneth Feinberg was appointed as TARP's special master for
executive compensation. Coincidence?

In October, Feinberg issued compensation guidelines for the companies
receiving special assistance, including Citi and Bank of America. That, and
the approach of the bonus season, lit a fire under executives at the largest
remaining TARP recipients."

------
jonbischke
Interesting to note too that at the same time all this is going on, Citibank
is jacking up credit card interest rates to 29.9% for many of its customers:

[http://www.associatedcontent.com/article/2370258/citibank_ra...](http://www.associatedcontent.com/article/2370258/citibank_raises_interest_rates_to_299.html)

Laughing all the way to the bank indeed...

~~~
gaius
Simplifying slightly, the way consumer credit works is, if you expect 10% of
your customers to default then you need to change 10% interest to even break
even, let alone cover your administrative costs, and let alone to make a
profit. If you are in a market segment that has somewhere near 30% chance of
defaulting then your options are a) a 30% credit card b) no credit at all.

~~~
ams6110
Well, your other option is to be a little more discriminating on who you issue
credit to in the first place.

I use credit cards, but only as a convenience. I never carry a balance. Why
should I subsidize deadbeats?

~~~
gaius
Yeah that's what I mean. The alternative to high interest isn't low interest,
it's no credit at all.

FWIW I use a charge card, which _has_ to be paid off in full every month.

