As featured on p. 218 of "Bloggers on the Bus," under the name "a MyDD blogger."

Monday, April 13, 2009

Banksters Getting Money From Everyone

Cue the world's tiniest violin for the poor souls who just can't cut it for under $1 million a year on Wall Street.

There is an air of exodus on Wall Street — and not just among those being fired. As Washington cracks down on compensation and tightens regulation of banks, a brain drain is occurring at some of the biggest ones. They are some of the same banks blamed for setting off the worst downturn since the Depression.

Top bankers have been leaving Goldman Sachs, Morgan Stanley, Citigroup and others in rising numbers to join banks that do not face tighter regulation, including foreign banks, or start-up companies eager to build themselves into tomorrow’s financial powerhouses. Others are leaving because of culture clashes at merging companies, like Bank of America and Merrill Lynch, and still others are simply retiring early.

Yes, I'm awfully choked up about the assholes driven out of the big Wall Street firms.

To the Times' credit, they go on to explain how this is a good thing, because it shrinks the size of the bigger banks and spreads the risk-taking. To their detriment, they fail to explain that the most likely reason for executives darting from the biggest banks is that they are insolvent. Sure, they're playing accounting games to keep up appearances, at the same time trying to raise billions in private money from investors. Simon Johnson explains all this.

How can the large banks persuade potential shareholders to put large amounts of new capital with them, given that their systems just failed massively, these systems have not been substantially changed, and - while there has been a bailout for insiders and creditors - shareholders were largely wiped out from mid 2007-end 2008?

It could, of course, be the case that shareholders see great upside. Anything that has fallen greatly may see some rebound. The large banks have demonstrated their political muscle, so that should help with other forms of government protection and “rents” (economics jargon for easy money from business that others aren’t allowed into). In the early stages of a recovery, perhaps the banks will be more generous to their shareholders; it could be that the excessive tunneling is a feature of a mad boom, and we seem some distance from having another of those.

But probably we are looking at a deeper market failure. Big money managers - including mutual funds, pension funds and insurance companies -have arguably failed in their fiduciary duty to ensure that major financial companies are run properly and in the interest of shareholders. These money managers have great resources, many years of experience, and real power vis-a-vis the companies. Why didn’t they push for stronger risk management? Why are they so eager to hand over our money again? Where exactly was or is their due diligence?

We're coming to a reckoning between the banksters and the regulators trying to rein them in. Shareholders really ought to know the risks at this point, and I weep little for them if they want to finance Goldman Sachs. What we cannot allow are the same people sucking the Treasury dry to then fleece their customers.

The committee overseeing federal banking-bailout programs is investigating the lending practices of institutions that received public funds, following a rash of complaints about increases in interest rates and fees.

Since the Troubled Asset Relief Program was launched last October, banks bolstered by capital infusions have boosted charges on a wide range of routine transactions, hiked rates on credit cards and continued making loans criticized as predatory by consumer advocates. The TARP funds are intended to open lending spigots and make it easier for people to borrow money.

Let me try to put this all together. The banks took billions from the government. They're offering stock sales to get billions from investors to pay some of the TARP money back (but they're balking at the interest rates the government is demanding). And they're bilking their customers for even more money.

No wonder they show good earnings.

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