What is good for the goose – is good. To hell with the gander

Amid declining approval ratings, President Bush needed to do something quick before he left office to ‘stimulate’ a faltering economy so he rolled out TARP – the “Troubled Asset Relief Program”. Politicians from both sides of the aisle lined up to support it. The American people were told it was imperative to bust the credit crunch. Ostensibly, the plan was to deliver hundreds of billions of dollars to the banks who were in imminent danger of failing to shore them up and provide capital to make loans to individuals and businesses in desperate need - loans for housing, transportation, debt consolidation and business capitalization.

It was supposed to ‘free up’ credit and save jobs so the people bought it even though they knew it would be costly and they would eventually end up paying the bill. They were admonished that it had to be done fast to avoid the possible total destruction of our economy. More than $700 billion was rushed to those bastions of fiscal integrity to avert the looming crisis. But then a funny thing happened. The people waited and waited for the banks to start lending. Institutions around the country continued to fail. The economy tanked, unemployment surged and credit was tighter than ever. So the people began asking where the money went and slowly our red-faced legislators sheepishly spoke up.

 The recipient banks used the TARP money to pay off their creditors and buy up their weaker competition strengthening their own position completely disregarding the hard working Americans the funds were supposed to relieve. Our political leaders notified us that they had forgotten to stipulate to the banks exactly how the TARP money was supposed to be spent. With no strings or established parameters the banks were free to use the funds at their own discretion. Everybody expected them to funnel the money to the American people to stimulate the economy, but they fooled us all. 

In fact, a large portion of the TARP funds were spent outside the United States! Then in an astonishing display of hubris a handful crowed about the profits they made overseas! In the midst of this double-dealing, foreclosures around the country skyrocketed. And as millions lost their lifetime stake in the American dream the beneficiaries of the biggest bailout in history refused to work with homeowners trying to save their homes. They refused to share the losses with the very people who bailed them out. Why? 

The new vehicle touted as a remedy for homeowners unable to meet their obligations was called a “Loan Modification” or “Loan Mod”. It was an innovative plan, but it required the cooperation of the lien holder. Unfortunately the banks were reluctant to take any hits in the process. Completed loan mods trickled in, but all too often the banks took a hard line and refused to negotiate. After all, why should they? They were suddenly solvent. Many took a hard line with their mortgagees and hardly made an effort to work with them. Without the aid of an attorney, too many attempts ended unsuccessfully. 

Eventually the overwhelming tsunami of foreclosures forced the less than altruistic banks to work with homeowners. The loan mod process is difficult and time consuming, but most banks have developed some type of program designed to keep as many homeowners in their homes as possible. But they still expect them to meet their obligations. So have they suddenly become concerned for the welfare of the people? Or was their decision to allow loan modifications a business decision?

A story in USA TODAY by Pallavi Gogoi and Paul Wiseman, indicates that some of our vaunted financial institutions still consider themselves entitled to special status with scant consideration for the plight of the people. Check out this enlightening statement: 

“In a sign that more banks are under great pressure from the recession, 34 financial institutions did not pay their quarterly dividends in August to the Treasury on funds obtained under the Troubled Asset Relief Fund (TARP)”. According to the USA TODAY article, Eric Fitzwater, Associate Director of Research at SNL Financial, explained that, “The banks are not paying their dividends because they are worried about preserving capital”. Got that? They don’t want to pay their obligations because they want to hold on to the money we loaned them. Gee, I wonder what would happen to the homeowners who decide not to make their payments because they want to “preserve their capital”? It is a pretty safe bet the banks would pursue them relentlessly. 

Does that mean the Treasury Department will have to take action? Don’t hold your breath. USA TODAY goes on “ The Treasury Department says it cannot force an institution to pay dividends” – remember our lawmakers gave them the money without stipulations – “For some banks, it may be prudent to exercise the right not to pay dividends in a particular month, and we respect their right to do so”, quoting Treasury spokesperson, Meg Reilly. Sounds like a pretty sweet arrangement. If they’re a little tight they can just blow their payments off – and the good old compassionate Treasury will understand.

 Perhaps if our government had not rushed fill the bank coffers and let them take a beating with the rest of us the last twelve months would have played out very differently. If the banks had to face the pain and duress of bankruptcy maybe they would have been more amenable to sharing the burdens with the homeowners and more inclined to negotiate remedies to benefit both.  Unfortunately the people have to pay their obligations, but the banks do not – unless they decide they can afford it. If the people need capital the banks may lend it to them provided they have collateral, good credit and prove their ability to repay, but if the banks need capital the government may give it to them with no strings attached. And if they donate a million dollars to the campaigns of certain politicians, not only can they be the recipient of billions of dollars – they can end up in the Whitehouse as official financial advisors to the government and help shape economic policy. 

Like I said – it’s a pretty sweet deal – for the goose.