Surprise, surprise, surprise. Private institutions realizing that gov't "bailouts" come with more, ever more onerous regulation that makes things ever worse. Shocking, simply shocking.

From the NYT:

March 11, 2009
Some Banks, Citing Strings, Want to Return Federal Aid
By STEPHEN LABATON

WASHINGTON — The list of demands keeps getting longer.

Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens.

As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.

The conditions are necessary to prevent Wall Street executives from paying lavish bonuses and buying corporate jets, some experts say, but others say the conditions go beyond protecting taxpayers and border on social engineering.

Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn., and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs and Wells Fargo.

They say they plan to return the money as quickly as possible or as soon as regulators set up a process to accept the refunds. On Tuesday, Signature Bank of New York announced that because of new executive pay restrictions in the economic stimulus package, it notified the Treasury that it intended to return the $120 million it had received from the government only three months ago.

Other institutions like Johnson Bank of Racine, Wis., initially expressed interest in seeking bailout funds but have now changed their minds. Bank executives told The Milwaukee Journal Sentinel that one reason they rejected the government money was to avoid any disruption in the bank’s role in the local community, including supporting the zoo or opera company if they chose to.

One of the biggest concerns of the banks is that the program lets Congress and the administration pile on new conditions at any time.

The demands to modify mortgages or forestall evictions are especially onerous, some bank executives and experts say, because they could prompt some institutions to take steps that could lead to greater losses.

“We are taking an approach that wants the banks to help the economy and whether it is ultimately good for a particular bank is secondary,” said L. William Seidman, the former senior regulator during the savings and loan bailout. “Weak banks are being asked to do things that will erode their position.”

A senior Treasury official involved in the bailout effort said the administration was carefully trying not to do anything that could harm the banks and was giving financial incentives to modify mortgages. The official said the restrictions were part of a larger effort to clean up bank balance sheets and assist the economy.

“We’re having to take some very unpleasant actions when the alternatives are so much worse,” said the official, who spoke on condition of not being identified.

But a growing chorus of industry experts are warning that asking weak banks to carry out the government’s economic and social policies could increase the drain on the public purse. These experts say that the financial assistance, while helpful in the short run, could force weak banks to engage in lending practices that will lose even more money, and that the government inevitably will become more heavily involved in dictating how banks do business.

“I honestly believe the people in power pushing this policy see it as a win-win — as something that is good for the banking industry and good for homeowners and others,” said Douglas J. Elliott, a former investment banker who is now an economics fellow at the Brookings Institution. “But there is a slippery slope and there are potentially significant negative consequences.”

Mr. Elliott says that by modifying loans, banks that are already fragile could wind up losing more money.

“What gets us in real trouble,” he said, “is when we try to fudge things and pretend that something is in the direct interest of both the government and the financial institutions when it in fact costs the banks money or increases their risk levels.”

Take Fannie Mae and Freddie Mac, the housing-finance companies that the government now controls. In recent months, they have been told to spend billions of dollars buying bundles of mortgages for which there are no other buyers, and to let homeowners refinance their loans — even if they have no equity.

Such commands are echoes of the 1990s, when Fannie and Freddie tried to balance dueling mandates that required them to make a profit for their shareholders and to serve a public mission of increasing homeownership.

In service of both shareholders and what they asserted was the public good, they borrowed extensively in order to buy and hold mortgages in their own investment portfolios. They purchased billions of dollars in risky subprime mortgages.

As a consequence of having a public mandate, they also had a credit line with the Treasury and their risky business strategies were viewed by the markets as being guaranteed by the government.

To satisfy both mandates, the companies also faced fewer restrictions and were allowed to take on more debt than other financial companies. But when buyers began defaulting and home prices plunged, the companies nearly collapsed and last fall were placed under government conservatorship. Mr. Elliott said that some banks participating in the bailout program are now in the same conflicting position that Fannie Mae and Freddie Mac were in.

He and other experts also worry that, by relying on weak banks to carry out the administration’s or Congress’s policies, officials are not biting the bullet and shutting down weak banks that may be insolvent.

At the height of the savings and loan crisis in the 1980s and 1990s, Congress and regulators adopted new rules known as “prompt corrective action” that required the government to quickly close weak financial institutions if they could not raise money to absorb mounting losses.

The rules were a response to a consensus that keeping weak institutions open longer, under an earlier practice known as forbearance, damaged healthy banks competing with the government-subsidized ones and ultimately destabilized the banking system. By shutting weakened institutions before their losses grew, prompt corrective action was also seen as less costly to taxpayers and the deposit insurance fund.

Administration officials say that some of the banks at issue today are simply too large to be seized by the government, making comparisons to the savings and loan crisis less meaningful.

Moreover, they say, the public outrage over the growing cost of the bailout makes it politically imperative that they exert greater control over the way the money is being spent.

But by keeping weak banks operating, the markets continue to sink and taxpayer costs are mounting, outside experts said. “The current policy is likely to result in weaker banks,” Mr. Seidman said. “And keeping insolvent banks in operation does not benefit the system.”

Some community bankers, whose institutions are stronger than the large money center banks, agree.

C. R. Cloutier, the president of MidSouth Bank of Lafayette, La., and a survivor of the savings and loan debacle, said that his institution received $20 million from the rescue fund because he and his board believed it was patriotic and would help them offer loans during a recession.

But faced with what he says is an unwarranted stigma of participating in the program, as well as the new restrictions on banks taking the money, he is now considering whether to return the money, as other institutions have sought to do.

“Two things you learn in the banking business,” Mr. Cloutier said. “The first is, concentration is bad. We now have 64 percent of deposits in eight institutions. The second rule is, your first loss is your best loss. Get it over with. Don’t pump water in a dead fish.”

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Cordially,
Rush

elrushbo2@theobviousgmail.com
Remove the obvious...

Ok if consolidation of banks is bad and I agree that consolidation of any system to a few indiviuals or companies is bad. Then why is it that we have had nothing but consolidations of banks insurance companies and corporations in general? didn't we bust the monopolies of Standard Oil and AT&T up. So why are they reconsolidated? to make things better? So some small banker knows better yet we continue to see fewer and fewer companies because they continue to buy each other up.

Here's a solution. Never Ever let a business buy another business that does the same thing. that is No General motors buying Chrysler and not Citibank buying Wamu. And GM couldnt buy all of Wamu. only the divisions that don't deal in car and home loans.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

"Wall Street -- including the banking sector -- is burning itself down. The fire is fueled by panic -- the final stage in a decline of confidence -- and can only be put out by measures that restore confidence. ... But President Obama -- having first claimed that only government can solve the economic problems -- is failing to provide any solutions Wall Street can believe in." --Human Events editor Jed Babbin

"You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat" --investor and Obama supporter Warren Buffett

Ok if consolidation of banks is bad and I agree that consolidation of any system to a few indiviuals or companies is bad. Then why is it that we have had nothing but consolidations of banks insurance companies and corporations in general?

Because that isn't what happened. The U.S has something like 8 THOUSAND individual banks, something like 200 insurance companies, and tens of millions of corporations. Yes, sometimes the big ones buy and swallow each other, and that makes the news, but overwhelmingly that isn't what happens.

didn't we bust the monopolies of Standard Oil and AT&T up. So why are they reconsolidated?

Because smart people avoid and evade gov't meddling. Because they are private companies. Because companies change all the time.

to make things better? So some small banker knows better yet we continue to see fewer and fewer companies because they continue to buy each other up.

Except that that we don't see "fewer and fewer companies." 8 thousand banks is PLENTY even if you were restricted to the ones in any particular state, and generally you aren't. 200 insurance companies is plenty, millions and millions of corporations is plenty--you don't ever have to deal with any of them if you don't want to.

Here's a solution. Never Ever let a business buy another business that does the same thing. that is No General motors buying Chrysler and not Citibank buying Wamu. And GM couldnt buy all of Wamu. only the divisions that don't deal in car and home loans.

You seem to just make this loony stuff up out of whole cloth. Economies of scale make enormous sense and are FAR less wasteful because there isn't duplication of effort.

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Cordially,
Rush

elrushbo2@theobviousgmail.com
Remove the obvious...

If any one company is to big to fail then it needs to be broken up. Take AIG. They insure corporate debt in such a way as to prevent corporate failure. What happens when all the corporations come calling and want their insurance claim money. The gov't gets to bail it out. perhaps if they weren't the only game in town the other insurers would take a second look at being so monetarily exposed if a massive fraud takes place. perhaps the enormous banks that took out these risks wouldnt have done it either had they been smaller and not had such heavy debt loads from buying out their competition. Ya know sometimes bigger isn't always better.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

If any one company is to big to fail then it needs to be broken up. Take AIG. They insure corporate debt in such a way as to prevent corporate failure. What happens when all the corporations come calling and want their insurance claim money.

They fail. As they should. Frankly, no company is too big to fail because they are just companies, groups of investors. Who cares?

The gov't gets to bail it out.

But that's what you seem to want. The gov't to meddle and give extraordinarily rich and sophisticated investors their money back--right out of the pockets of those that can afford it the least.

perhaps if they weren't the only game in town the other insurers would take a second look at being so monetarily exposed if a massive fraud takes place. perhaps the enormous banks that took out these risks wouldnt have done it either had they been smaller and not had such heavy debt loads from buying out their competition. Ya know sometimes bigger isn't always better.

AIG wasn't and isn't the only game in town, by far. What you would have done in their shoes isn't really relevant.

The point was that many of the smart companies are dumping their "bailout" money the hell back to the gov't because the gov't regulations that are attached to the money are stupid and self-defeating.

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Cordially,
Rush

elrushbo2@theobviousgmail.com
Remove the obvious...

If any one company is to big to fail then it needs to be broken up. Take AIG. They insure corporate debt in such a way as to prevent corporate failure. What happens when all the corporations come calling and want their insurance claim money.

They fail. As they should. Frankly, no company is too big to fail because they are just companies, groups of investors. Who cares?

The gov't gets to bail it out.

But that's what you seem to want. The gov't to meddle and give extraordinarily rich and sophisticated investors their money back--right out of the pockets of those that can afford it the least.

perhaps if they weren't the only game in town the other insurers would take a second look at being so monetarily exposed if a massive fraud takes place. perhaps the enormous banks that took out these risks wouldnt have done it either had they been smaller and not had such heavy debt loads from buying out their competition. Ya know sometimes bigger isn't always better.

AIG wasn't and isn't the only game in town, by far. What you would have done in their shoes isn't really relevant.

The point was that many of the smart companies are dumping their "bailout" money the hell back to the gov't because the gov't regulations that are attached to the money are stupid and self-defeating.

OK I'll bite... Find another Insurer of securities that even remotely comes close the shear volume of policies held. You can't because their isn't anyone else even close to being AIGesque. I realize that I will never change your mind my only hope is people read what I say and realize the difference between reality and neocon reality.

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In a rich man's house there is no place to spit but his face.
Diogenes Of Sinope

If any one company is to big to fail then it needs to be broken up. Take AIG. They insure corporate debt in such a way as to prevent corporate failure. What happens when all the corporations come calling and want their insurance claim money.

They fail. As they should. Frankly, no company is too big to fail because they are just companies, groups of investors. Who cares?

The gov't gets to bail it out.

But that's what you seem to want. The gov't to meddle and give extraordinarily rich and sophisticated investors their money back--right out of the pockets of those that can afford it the least.

perhaps if they weren't the only game in town the other insurers would take a second look at being so monetarily exposed if a massive fraud takes place. perhaps the enormous banks that took out these risks wouldnt have done it either had they been smaller and not had such heavy debt loads from buying out their competition. Ya know sometimes bigger isn't always better.

AIG wasn't and isn't the only game in town, by far. What you would have done in their shoes isn't really relevant.

The point was that many of the smart companies are dumping their "bailout" money the hell back to the gov't because the gov't regulations that are attached to the money are stupid and self-defeating.

OK I'll bite... Find another Insurer of securities that even remotely comes close the shear volume of policies held. You can't because their isn't anyone else even close to being AIGesque. I realize that I will never change your mind my only hope is people read what I say and realize the difference between reality and neocon reality.

What are you trying to change my mind about? That there are LOTS of insurance companies? There are. That AIG was big? It was. That AIG basically handed out most of it's bailout money to support it's contractual obligations? It did.

Any corporation that needs this insurance can go to any company that insures such things. They don't need someone that "even remotely comes close to the shear volume of the policies held," because that isn't their concern, they just want insurance. Similarly, if you need a phone company, you don't care what the sheer volume of calls they have, you only care if they can handle your calls. Or a car company, you don't care what the sheer volume of cars they sell is, you only care that they can handle yours. The same is true for insurance companies, millions of corporations DIDN'T use AIG. They used someone else. They didn't care that no one else was "close to being AIGesque," because that wasn't their concern. They just wanted insurance.

Rest assured, I'm very very glad people read what you say.

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Cordially,
Rush

elrushbo2@theobviousgmail.com
Remove the obvious...

The point was that many of the smart companies are dumping their "bailout" money the hell back to the gov't because the gov't regulations that are attached to the money are stupid and self-defeating.

It's nice to know that government incompetence, for once, is resulting in appropriate action (e.g. returning 'bailout' money).