Must read NY Times story - So When Will Banks Give Loans?

[Kevin]

So When Will Banks Give Loans?
by Joe Nocera
http://www.nytimes.com/2008/10/25/business/25nocera.html?em=&pagewanted=all

“Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?”

It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon, agreed to take a $25 billion capital injection courtesy of the United States government, when a JPMorgan employee asked that question. It came toward the end of an employee-only conference call that had been largely devoted to meshing certain divisions of JPMorgan with its new acquisition, Washington Mutual.

Which, of course, it also got thanks to the federal government. Christmas came early at JPMorgan Chase.

The JPMorgan executive who was moderating the employee conference call didn’t hesitate to answer a question that was pretty politically sensitive given the events of the previous few weeks.

Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse.

In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.

(He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.)

“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. On the contrary: at another point in the conference call, the same executive (who I’m not naming because he didn’t know I would be listening in) explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.

It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction.

In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, “the government wants not only to stabilize the industry, but also to reshape it.” Now they tell us.

Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: “It couldn’t be clearer if they had taken out an ad.”

Friday delivered the first piece of evidence that this is, indeed, the plan. PNC announced that it was purchasing National City, an acquisition that will be greatly aided by the new tax break, which will allow it to immediately deduct any losses on National City’s books.

As part of the deal, it is also tapping the bailout fund for $7.7 billion, giving the government preferred stock in return. At least some of that $7.7 billion would have gone to NatCity if the government had deemed it worth saving. In other words, the government is giving PNC money that might otherwise have gone to NatCity as a reward for taking over NatCity.

I don’t know about you, but I’m starting to feel as if we’ve been sold a bill of goods.

•

The markets had another brutal day Friday. The Asian markets got crushed. Germany and England were down more than 5 percent. In the hours before the United States markets opened, all the signals suggested it was going to be the worst day yet in the crisis. The Dow dropped more than 400 points at the opening, but thankfully it never got any worse.

There are lots of reasons the markets remain unstable — fears of a global recession, companies offering poor profit projections for the rest of the year, and the continuing uncertainties brought on by the credit crisis. But another reason, I now believe, is that investors no longer trust Treasury. First it says it has to have $700 billion to buy back toxic mortgage-backed securities. Then, as Mr. Paulson divulged to The Times this week, it turns out that even before the bill passed the House, he told his staff to start drawing up a plan for capital injections. Fearing Congress’s reaction, he didn’t tell the Hill about his change of heart.

Now, he’s shifted gears again, and is directing Treasury to use the money to force bank acquisitions. Sneaking in the tax break isn’t exactly confidence-inspiring, either. (And let’s not even get into the less-than-credible, after-the-fact rationalizations for letting Lehman default, which stands as the single worst mistake the government has made in the crisis.)

On Thursday, at a hearing of the Senate Banking Committee, the chairman, Christopher J. Dodd, a Connecticut Democrat, pushed Neel Kashkari, the young Treasury official who is Mr. Paulson’s point man on the bailout plan, on the subject of banks’ continuing reluctance to make loans. How, Senator Dodd asked, was Treasury going to ensure that banks used their new government capital to make loans — “besides rhetorically begging them?”

“We share your view,” Mr. Kashkari replied. “We want our banks to be lending in our communities.”

Senator Dodd: “Are you insisting upon it?”

Mr. Kashkari: “We are insisting upon it in all our actions.”

But they are doing no such thing. Unlike the British government, which is mandating lending requirements in return for capital injections, our government seems afraid to do anything except plead. And those pleas, in this environment, are falling on deaf ears.

Yes, there are times when a troubled bank needs to be acquired by a stronger bank. Given that the federal government insures deposits, it has an abiding interest in seeing that such mergers take place as smoothly as possible. Nobody is saying those kinds of deals shouldn’t take place.

But Citigroup, at this point, probably falls into the category of troubled bank, and nobody seems to be arguing that it should be taken over. It is in the “too big to fail” category, and the government will ensure that it gets back on its feet, no matter how much money it takes. One reason Mr. Paulson forced all of the nine biggest banks to take government money was to mask the fact that some of them are much weaker than others.

We have long been a country that has treasured its diversity of banks; up until the 1980s, in fact, there were no national banks at all. If Treasury is using the bailout bill to turn the banking system into the oligopoly of giant national institutions, it is hard to see how that will help anybody. Except, of course, the giant banks that are declared the winners by Treasury.

JPMorgan is going to be one of the winners — and deservedly so.

Mr. Dimon managed the company so well during the housing bubble that it is saddled with very few of the problems that have crippled competitors like Citi. The government handed it Bear Stearns and Washington Mutual because it was strong enough to swallow both institutions without so much as a burp.

Of all the banking executives in that room with Mr. Paulson a few weeks ago, none needed the government’s money less than Mr. Dimon. A company spokesman told me, “We accepted the money for the good of the entire financial system.” He added that JP Morgan would use the money “to do good for customers and shareholders. We are disciplined to try to make loans that people can repay.”

Nobody is saying it should make loans that people can’t repay. What I am saying is that Mr. Dimon took the $25 billion on the condition that his institution would start making loans. There are plenty of small and medium-size businesses that are choking because they have no access to capital — and are perfectly capable of repaying the money. How about a loan program for them, Mr. Dimon?

Late Thursday afternoon, I caught up with Senator Dodd, and asked him what he was going to do if the loan situation didn’t improve. “All I can tell you is that we are going to have the bankers up here, probably in another couple of weeks and we are going to have a very blunt conversation,” he replied.

He continued: “If it turns out that they are hoarding, you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay.”

Let’s hope so.

[Ed Ziomek]

Kev...and all,

First, congratulations for being one of the first to highlight the mystery of the bailout monies, and when loans would restart.

Well, I now hear it might be much worse than we EVER thought possible.

I overheard one comment that chilled my spine..."We don't know how many liabilities Lehman Brothers had. They may have printed up all kinds of promissory notes that won't show up for ten years, so nobody knows the extent of the liabilities, and the losses."

Another quote that will surprise very few... "JP Morgan, Goldman, Citibank... very, very tough times, getting tougher, lookout!"

Another quote... "Ford and GM employ 35 million people worldwide, and they should get special help and special attention, can you imagine if they go under?"

My own quote... US-based affiliates of GM and Ford, reorganized under a Federal mandate, should be subsidized till they become stabilized, as a Defense Industry strategic necessity.

But the best news that I heard, from America's Star Spangled Savannah Georgia, whose municipalities apparently are funding local startups, local manufacturing which employ local residents, at low tax rates, with long term payback to buyout options, for the simple fact of rebuilding American manufacturing in our OWN BACK YARD!!!

In the midst of all this chaos, BEAUTIFUL NEWS, let's build it ourselves!

Like one CEO told me, if America would stop taxing local manufacturers at 35%, let us compete with a lower rate against overseas manufacturing who only tax us 10%!

PS... Where here in the United States, financial executives look forward to payouts even when their corporations go bankrupt, overseas financial executives are being arrested!!!

Good call Kev, when is the credit, and when are the loans becoming available? Or is the money (1.3 Trillion I have heard) already gone?

[rocketman]

This is absurd, insane. How many lies can the American people accept before they realize some heads need to start rolling ? Cannot people see that these bankers are only feathering their nests, on the backs of the American people, using their sweat and tears to build their empires, where the rest of the world goes to hell? When mayhem sets in, then they will have all their banks plush with capital and no money left even for business lending, for the Average citizen, who is left out in the cold. These liars, sharks, thieves not only are destroying the foundations of capitalism, but taking the money of our children and future in the process, only to inject into making themselves stronger, and build up their corporate banks with fat cash, money stolen from the American people. These scoundrels running this country are guilty of the highest crimes of treason against the American people, against it's interests, against the average American citizen. Down with Sir George and his lying schemes and behind closed doors covenants with the dirty banking industry. Is everyone too blind to see the hand writing on the wall?

And they stuff AIG with more dirty billions, one of the most corrupt schemes of money laundering, and now for the sake of a few billions, would rather let the backbone of American industry go to hell, only to fortify their financial empires which they carelessly allowed to plunge the world into a recession? These dirty bastards in their contriving and scheming are not looking out for the interests of the American Citizen, but instead into stuffing their own dirty pockets with cash, and grow the size of the oligarchies of power, feeding the money back to the dirty purse strings that control the banking industry - the Rockefellers and the like, and their descendants.

These words used in this posting are too luke warm, given the dire circumstances of the filthy schemes going on behind closed doors, in their contriving and scheming.

These scum buckets knew all along what they are doing, and that the money was never going to be used as they claimed. It was just another excuse, as the Iraq war, for these scum bags to achieve their hidden agendas and of the power elite, who are contriving all this mess to institute their new re-organization of the world under the vision they impose, and to allow the control of the populations on the part of the elite. The world is in a dire predicament, and unless people wake up quickly and demand positive action, we are in for big trouble. Down with the big greedy corporations, down with their acquisitions and filthy schemes of money laundering and retaining of funds, all in the name of corporate greed, while the economy goes to hell.

[Ed Ziomek]

Rocketman... Can I agree with you AND disagree with you too?

Your words are very close to what everyone is thinking, and everyone is saying.

Your quote..."Cannot people see that these bankers are only feathering their nests, on the backs of the American people, using their sweat and tears to build their empires, where the rest of the world goes to hell?"

This is where we disagree. The nests they built are disintegrating, there is no place to run, no place to hide. And it will get momentarily worse, we all know this.

Solution: The new administration knows what you are saying, agrees with a few of your points. But let's give them a chance, all of us.

Who would be your better leader than the one that has been elected? And what have you done to better the situation?

Even though it is not enough to please myself, I know what I have done, reducing my gas purchase to about ten gallons per week. We reduce the house temperature to 58 at night, 65 in the day. I am actively looking for a third job and sold my spare truck, and purchased a 30 year old sewing machine that can make construction tarps and insulating curtains, hoping to turn it into a paying occupation.

What have you specifically done to help the situation?

Let's work on the solutions, let's help each other.

[rocketman]

I appreciate the words Mr. Ziomek. It is fine to disagree, everyone is entitled to an opinion. What I am saying is that the large banks are scheming to swallup up smaller banks, with the blessing of current policy, and by tapping into the billions set aside not for this purpose, but to purchase the toxix mortages. Why should American's hard earned money be used to support mergers and only make the big banks bigger and fatter, while the rest of the world and banks go to hell? Those fat banks aren't even lending the money out, but rather strengthening themselves by acquisisions of smaller banks who would have otherwise gotten the money, had not the government given it to the big banks, to swallow up the small ones. This is unacceptable - large banks contriving and scheming to allow the smaller banks to fail, take our cash and fatten themselves by acquiring other banks, thus strengthening monopolies, oligarchies of power, and concentration of wealth into a few hands, who on a whim decide to withhold this money now, rather then give it back to the people and business as loans.... they are only contributing to the crisis, with ill formulated policies, slight of hand, lack of proper demands from the banks, that before they be given loans, they must sign that they will make it available as loans to the public and to business, as is being done in Europe. Why is this not being done in the US? It is clear is is a matter of cooporate interest. Who do you think now controls the central banks and it benefiting from all this? It is clear who is behind all this, as placed in the other post..... those who are behind all this and have a vested interest into fortifying a few of their large massive banks, so as to strengthen their power grip on the banking system and the world. While the majority of banks are des-integrating, a few banks are growing bigger and stronger and now the capital is being concentrated into a few hands, who on a whim now can control the world by controlling the money supply. Cannot anyone see this?

As far as personnal matters, have been driving a converted vehicle now for ten years, that runs on ethanol, so am doing my part to the environment.

I am not saying who would be the better or best leader elected. The quality of the leader depends only on the quality of those who elect him, and their joint decisions to improve the situtation.

And this whole thing was caused by those who allowed all this to happen by lack of foresight, lack of planning, lack of proper controls and checks and balances, and by those who had a vested interest to let it happen, so as to increase their grip and control and concentration of economic power. There are many things hapening behind closed doors that few are aware of, and another post in these forums states it well:

[alittlesensetodesign]

Tre.as.ur.y. secretary over-ruling C.o.ng.re.ss. and pushing through...an.... il.leg.al... l.aw--- that benefited b.a.n.k.s... and allowed for even more mergers, thus strengthening the ..g.rip of a few ..b.a.nk.s, and expanding the ..oli.gar.chy of .pow.er, ju.st as Rocketman had stated previously in this discussion -->>

http://www.washingtonpost.com/
wp-dyn/content/article/2008/11/09/AR2008110902155_pf.html

(Second part of ..a.d.dr.ess.. above follows first in brow..ser....with no space)

These ..c.r.i.m.i.n.a.ls.. have their necks deep in their ..c.r.i.m.e.s and continue their ..se.c.re.t doings behind closed doors, and in the process are destroying .A.m.e.r.ica and raising our debt into the t.r.i.l.l.i.o.n.s... without nobody knowing what is going on. It is high time all these .c.r.i.mi.na.ls ....be.... put.... in.... j.a.i.l... for their crimes against the .c.i.t.i.z.e.ns of .A.me.rica.

Good luck to .Blo.om.be.rg in their .la.ws.ui.t ...against the ..g.o.v.e.r.n..me.nt on their refusal to d.i.s.cl.os.e ...also where the ..l.o.an..s ..are being made and to which ...ba.n.k.s....

"F.e.d.. D.e.f.ie.s... T.r.a.n.s..pa..re.ncy... Aim in .R.e..f.us..a.l... to D.i.s.cl..os.e (Update2) "

http://www.bloomberg.com/
apps/news?pid=20601087&sid=aatlky_cH.tY&refer=home

(Second part of ..a.d.dr.ess.. above follows first in brow..ser....with no space)

[rocketman]

To better explain what is really going on, and why these banks are not providing loans, see the post below. It is truly eye opening. The American voters are being fooled and doped for trillions to save the central banks, all on the cost of the tax-payer -->>

All this is summed up in the research and links I provided here today, at the end of this post below -->>

Inevitable Collapse of the System

http://www.designcommunity.com/forums/viewtopic.php?t=20833&sid=d6e7223997c595657d73ae55ac1a941e

For those who want to know what is really going on, read the info posted and links at the end of the topic, and the post I placed there today entitled:

Inevitable Collapse of the System