Bank Lawyer's Blog

TARP Free And Proud Of It

Four banks, led by Iberiabank Corp,  were first out of the gate today to announce that they'd paid back their TARP CPP investments. The four repaid the US Treasury over $338 million to redeem referred stock and warrants, and also repaid accrued dividends. Two of the banks, Iberia and Signature Bank, said that the repayment was directly tied to the Treasury Department's after-the-fact imposition of executive compensation restrictions in February.

A February revision to the bailout as part of a federal stimulus package “adversely affected our business model and it became apparent that we should return these funds to the Treasury,” Signature Chief Executive Officer Joseph DePaolo said today in a statement. 

That's a nice way of saying, "Hey Timmy: Take this TARP and shove it!"

According to today's edition of The American Banker, the Gang of Four is only the first group of banks to repay, and (as we predicted) there will be more on the way.

Other banking companies have announced that they will return the capital they received as soon as possible, including the $16.3 billion-asset TCF Financial Corp. in Wayzata, Minn., and the $82 billion-asset Northern Trust Corp. in Chicago.

[...]

Many healthy Tarp recipients have become disenchanted with the program, saying that the political climate shifted from one where they were encouraged to take the money to help stimulate the economy to one where they are being treated punitively.

The cynics in D.C. have queered this program for many banks who otherwise would have participated. Instead of actually leading the public, politicians have bowed before (or worse, actively incited and manipulated) the Howling Herd that can't separate Wall Street "banks" from community "banks." Much of the public apparently believes that the CPP was designed solely to line the pockets of top executives at the corner bank. Instead of emphasizing that the US Government sought out and encouraged banks to take the CPP money in order to leverage it into new lending, or to cushion the banks against losses on toxic loans and, it was hoped, "unclog" a frozen interbank lending market, the pols in  Washington have willfully failed to exercise leadership by clearly explaining these facts or, worse, have engaged in dishonest demagoguery in order to exploit the public's misunderstanding of the program so that blame for the mess we're in could be deflected onto a convenient scapegoat. In that effort, the politicians have been aided by some equally cynical bankers, who've used TARP as a marketing bat with which to beat their brothers over the head.

Daryl G. Byrd, Iberiabank's president and chief executive officer, has complained that the public feels Tarp recipients are troubled and deserve to have new requirements imposed on how they do business.

"When we decided to accept funds under this program, we believed we were the type of healthy bank that could employ the funds in the manner consistent with the goals initially set out by Congress and the Treasury in supporting the expansion of credit to the markets we serve," Byrd said in a press release when Iberia announced its plan to exit Tarp.

"We believe recent actions, interpretations, and commentary regarding various aspects of the program places our company at an unacceptable competitive disadvantage. Our board of directors has determined that continued participation in this program is no longer in the best interest of our company and its shareholders."

What does T-A-R-P spell? "FAIL."

OTS Backdating Scandal: From Bad To Worse

Earlier this  month, we headlined a post about the backdating scandal at IndyMac, "As Bad As It Gets." We were just kidding. It gets worse (paid subscription required).

The Treasury Department's inspector general is investigating whether regulators allowed the backdating of a capital transfer by BankUnited Financial Corp. that made its banking unit appear healthier than it was, according to people familiar with the matter.

The probe prompted the Treasury on Thursday to place the acting director of the Office of Thrift Supervision, Scott M. Polakoff, on leave, these people said.

The Treasury on Thursday said only that Mr. Polakoff was on leave pending a review of "the OTS's August 2008 actions related to post-period capital contributions."

[...]

Mr. Polakoff, a career federal employee, took the agency's reins last month after several years as its second in command. His absence surprised some OTS employees and industry officials, who said they hold Mr. Polakoff in high regard.

BankUnited is apparently one of the "four other instances" of backdating of capital contributions that the OTS uncovered in a internal investigation a couple of months ago, and that insipid intrepid "investigative reporter" for ABC News, Brian Ross, squawked about as he unsuccessfully chased Darrel Dochow around the block in a vain attempt to get him to spill some beans about backdating at IndyMac. I wonder if we'll get a "back-dater-of-the-month" disclosure from the OTS for the rest of this spring?

Dochow took early retirement. As a bigger fish in the OTS pond, Polakoff might take a harder hit if it's discovered that he knew about this pattern of backdating and let it slide, or worse, approved it. At present, there's no public evidence of anything other than that it happened on his watch, so at the very least, he's likely to have to fall on his sword. Whatever the ultimate result, it appears his career at the OTS will not end with him covered in glory.

Stepping into the breach is OTS General Counsel John Bowman, a guy who, I think, was one of the originators of the "shelf charter" concept now adopted by the OCC, as well as the OTS, to smooth the way for private investors to buy broken banks. Being appointed Acting Director of the OTS must feel like being promoted to Captain of The Titanic. It's an honor, sure, but my guess is that John might just as soon have been manning a lifeboat.

One of Mr. Polakoff's last public speeches is now rendered especially ironic.

As recently as last week, Mr. Polakoff had been appearing at industry events and defending the OTS's role in the face of a likely reorganization of the federal bank-regulatory apparatus.

"While there's a lot of crises right now, I don't think there's a crisis on the regulatory front," he said in a speech last Saturday at a community-bankers convention in Phoenix.

 I suppose, as one ex-President mused about the definition of the word "is," it all depends on how you define "crisis." If the OTS is not currently in a state of crisis, it's certainly in the next best thing to that state. And it's only going to keep getting worse.

More Of The Same Old Sleaze

We once thought that Clinton appointee Franklin Raines had a sweet deal at Fannie Mae (even though he had to--kind of--sort of--pay back a wad of his "compensation"). On a per-hour basis, Franklin had nothing on current White House Chief of Staff Rahm Emanuel. Emanuel, appointed to Freddie Mac's Board of Directors by Clinton, stayed a smidge over a year at Freddie Mac, didn't serve on any of the committees where the actual work of the Board was performed, and still pocketed a cool $320,000. Even if he forced himself to attend seven board meetings (the board met only every other month) and actually stayed awake during them, what's that work out to, $46,000 an hour? Wow, even Eliot Spizer wouldn't pay that much for an hour of straight sex.

 And, boy did Freddie get its money's worth of strict oversight out of Rahm ("Eagle-Eye") Emanuel!

On Emanuel's watch, the board was told by executives of a plan to use accounting tricks to mislead shareholders about outsize profits the government-chartered firm was then reaping from risky investments. The goal was to push earnings onto the books in future years, ensuring that Freddie Mac would appear profitable on paper for years to come and helping maximize annual bonuses for company brass.

The accounting scandal wasn't the only one that brewed during Emanuel's tenure.

During his brief time on the board, the company hatched a plan to enhance its political muscle. That scheme, also reviewed by the board, led to a record $3.8 million fine from the Federal Election Commission for illegally using corporate resources to host fundraisers for politicians. Emanuel was the beneficiary of one of those parties after he left the board and ran in 2002 for a seat in Congress from the North Side of Chicago.

The board was throttled for its acquiescence to the accounting manipulation in a 2003 report by Armando Falcon Jr., head of a federaloversight agency for Freddie Mac. The scandal forced Freddie Mac to restate $5 billion in earnings and pay $585 million in fines and legal settlements. It also foreshadowed even harder times at the firm.

Many of those same risky investment practices tied to the accounting scandal eventually brought the firm to the brink of insolvency and led to its seizure last year by the Bush administration, which pledged to inject up to $100 billion in new capital to keep the firm afloat. The Obama administration has doubled that commitment.

Freddie Mac reported recently that it lost $50 billion in 2008. It so far has tapped $14 billion of the government's guarantee and said it soon will need an additional $30 billion to keep operating.

The Change We Have Been Waiting For. Not.

A Regulator's "Kumbaya Moment"

At a Congressional hearing today (paid subscription required), federal bank regulators reluctantly confirmed what we (and many bankers) have been complaining about for months (most recently, here and here): bank regulators are sending conflicting signals to banks about lending. The popular line is that banks are greedily scarfing up TARP money, then sitting on it for no good reason other than fear and/or greed, instead of lending it to deserving borrowers, who, in turn, would use it to take in  a movie, fill their pie hole, buy some crack or a lap dance, or otherwise grease the wheels of commerce. Regulators have publicly urged banks to increase their lending "to creditworthy borrowers, consistent with safe and sound underwriting principles." You know the drill.

Under prodding from various Congresspersons, banking regulators owned up the fact that what banks have been hearing amounts to (in the words of an American Banker headline) "Regulatory Dissonance."

Though federal regulators acknowledged they were partly responsible for mixed messages sent to banks — "increase your lending, tighten your loan standards" — they continued to send them at a House hearing Wednesday.

With lawmakers also shouldering some of the blame, regulators contradicted each other — and, at times, themselves — about what they were asking of banks.

Timothy Long, the chief national bank examiner in the Office of the Comptroller of the Currency, insisted that his agency is not reining in lending standards excessively but at the same time called those standards too lax.

"We have not told our examiners to crack down on banks," he said. "They are obviously more sensitive to problem assets and loan portfolios."

It's great the way a regulator will stand up and flat out admit they might have screwed up without trying to waffle, isn't it? In Long's defense, last week he had to sit before a Senate committee and be excoriated by mental heavyweights in that august body about how lax the OCC was in forcing tight risk management practices on banks under its supervision. He had to swear that the OCC was cracking down on the lax underwriting practices of national banks to mollify the yapping interlocutors at that gabfest. The next week he has to listen to the likes of Barney Frank badger him for being too strict on banks. It's enough to give a regulator "Congressional Dissonance."

During the hearing, Frank asked regulators whether banker complaints of a crackdown had merit. At least one, Scott Polakoff, the acting director of the Office of Thrift Supervision, said bankers are right.

"There is an element of truth to that," he said. "What we have to do here is improve our communication. There are a number of mixed messages here."

The OCC's Long denied there is a crackdown but said regulators have reason to be concerned.

"I don't think we have ever gone into an economic downturn with the kind of commercial real estate concentrations like we have now," he said. "Naturally our examiners are focused on that."

Not only a waffle, but a whole wheat waffle with plenty of butter and syrup on it.

Texas Democrat Al Green had some fun with Mr. Long's reluctance to own up to the fact that his agency's been speaking with a forked tongue. Texans are master pimpers and Al's no exception.

Rep. Al Green, D-Texas, said he is concerned that creditworthy borrowers are being shunned. After asking the regulators to raise their hands if they agreed, two — Federal Reserve Board Gov. Betsy Duke and the OTS' Polakoff — raised them.

Noticing that the OCC's Long kept his hand down, Green asked him to defend the claim that creditworthy borrowers are not being denied loans.

"In talking to bankers, I ask bankers point-blank if they are [giving loans] to creditworthy borrowers, and everyone is telling me, 'Yes, we are,' " Long responded.

But after Green pressed the point, Long acknowledged that in some sectors securitization is shut down and that banks with heavy concentrations in certain areas have stopped lending.

Green appeared satisfied. "Mr. Long, you and I are having a kumbaya moment," he said.

I'm convinced that Tim would have thought while that song had a nice melody, you just couldn't dance to the beat. It's a great song to accompany standing around in a useless circle holding hands, after ingesting mushroom caps, though, so Big Al was right on the money with a musical reference that's perfect for any Congressional hearing.

At least Barney shouldered some of the blame, although his shoulders are awfully small.

"We do tell the regulators two things: Tell people to make loans; tell people not to make loans," he said. "They are not supposed to be the same loans, but there is this tension here."

But the Massachusetts Democrat said lenders have to find a way to start lending again and said this could happen even while keeping the system protected.

"In normal times, the role of the regulators is to make sure the bad loans aren't made … , but we are not in normal times right now," he said. "We are in times where there is a clear problem with making good loans."

We're also in times where there's a clear problem with making good public policy. How about taking the first step in the right direction, Barney, and resign?

Where There's A Will, There's A Way

An article by Cheyenne Hopkins in today's American Banker (paid subscription required) nicely outlines the immediate reactions of many banking lawyers and consultants to the toxic asset and loan purchase plans announced yesterday by the Treasury Department.

"My concern is that the willing buyer and the willing seller may still be too far apart to create a trade," said Douglas Elliott, a fellow at the Brookings Institution.

FDIC Chairman Sheila Bair conceded that possibility, acknowledging nothing could guarantee the process would produce a good deal for the investor, the bank and the government.

"There is always that risk," she said in a conference call with reporters. "Markets will do what markets will do, but I think this structure has a better chance than any that I've seen to provide that magic price where buyer and seller are willing to meet. But we won't find out until we get it running and see what happens."

The first reaction many of us had to the plan was: "what's the incentive for the bank holding the 'toxic assets' to unload them at prices at which private investors would want to purchase them?" That's been the problem from Day One, when Paulson announced this program last fall. If a bank's written them down to a level that nears a current "fair market value" price, so that no further "haircut" (and no further hit to capital) is taken, then why sell them to a third party who'll benefit from all of the upside as prices recover? Why not hold onto them and let the other chumps establish a market price, get the business moving again, and reap all of the eventual upside for itself?

If the bank hasn't written the assets down, or has, but not enough to make them attractive to buyers, then why would the bank sell them now and take the hit to capital? Let the other chumps sell, reinvigorate the market, and wait until the haircut is much less.

Sheila Bair and others give us a clue as to what might "induce" an unwilling bank to sell.

When asked if regulators might push bankers to accept a price offered through the auction process, Bair responded that it would be a "consultative process with supervisors."

Industry observers argued that the banking agencies would penalize banks that did not take the opportunity to shed their most troublesome assets.

"If the banks refuse to sell, I think you'll see an increased pressure on the part of the regulators and an increased Camels rating going on to the watch list," said Thoma Barrack Jr., the founder, chairman and chief executive of Colony Capital LLC. "The regulators will have no other alternative to start shutting down more banks."

Mark Zandi, chief economist and co-founder of Moody's Economy.com, Inc., said pressure from the Treasury Department and the results of "stress tests" on the banks could force many to participate.

"The stress tests might push the banks to lower their price, and given the very lucrative financing for investors, that will get them to raise their price, and we'll find a nice middle ground here," he said. "So I'm hopeful that the Treasury is pushing both the buyer and the seller to some middle ground, and that will get the auction to work reasonably well."

My guess is that if the regulators start pressuring banks to sell even though they take a hit to capital that impairs their ability to survive, then the quid-pro-quo will need to be additional capital, open bank assistance, or forbearance from the regulators. No bank board will willingly permit a sale at a price that impairs the bank's ability to survive. They'd just as soon let the regulators take punitive action against the institution, even if that results in failure, because they'll at least have a better defense to any action shareholders or the regulators might take against them later that their negligence or malfeasance caused the bank to fail. They can say that the regulators punished them for not doing an unsafe and unsound thing: selling at a price that would have caused the bank to fail.

I can also foresee that if some banks start participating in the program, then the sales prices for assets will be used by the regulators to benchmark values for assets held by recalcitrant banks. If those asset prices would cause a hit to capital, the regulators might "suggest" to the bank that it might as well sell and take the hit, because the next examination team in the bank is going to write down the value of those securities to at least that "market" value and, who knows, maybe even lower. Again, unless the regulators want more banks to fail, I assume they've got a plan in place to replace that capital. Either that, or the FDIC better start taking steroids.

I've seen a lot of complaints on blogs and elsewhere that this is a giant conspiracy to set the price of assets too high and to screw the taxpayer. Banks should be so lucky. The private investors we and others have talked to are salivating at the prospect of offering a nickel on the dollar and making oodles and oodles of serious money by buying assets on the cheap. Those profits will be shared with the US government. Folks like Wilbur Ross, who announced that he's onboard with the program, aren't going to give away profit for the public good. The financing may be so cheap, and the leverage so good, that above-distressed market prices will be offered, but I simply don't think that it's the taxpayers and private investors who will take it on the chin by "overpaying."

No, I think Ms. Bair's comments are very instructive. "Consultations" will be held. Arms will be twisted. Fingers will be broken.

Or, perhaps, the entire cumbersome structure will grind to a halt and collapse under its gross bureaucratic weight.

Wait a minute, I forgot: failure is not an option! As Tim Geithner said in today's House hearing, when asked if he had a backup plan in case this one failed, competence is not a consideration in the success or failure of this program.

Geithner: "This plan will work...it just requires will, not ability."

How very Neitzchean of Secretary Geithner. "Competence? We don't need no stinkin' competence! We have the Force, and the Force is with us!"

Man, this year is going to be a barrel of fun.

CRA Extension: Let's Focus On The Real Issues

We're waiting on pins and needles for the details of the next great idea for disposing of toxic assets on the balance sheets of big banks by enticing private investors to participate in working out those assets with a government whose word is no bond, and which blows with the prevailing winds. Let's hope the buyers get their money up front, then move to a country with no extradition treaty with the U.S. Otherwise, when Congress and/or the American people decide the deal was too good for private equity, they'll change it or punitively tax it retroactively

While we squirm with anticipation, we can't help but notice that Texas Rep. Eddie Bernice Johnson is pushing forward with a bill to extend the coverage of the Community Reinvestment Act to non-banks, such as credit unions and non-bank mortgage lenders. It's been something that liberal Democrats have been targeting for years, including Barney Frank. It's expected that Republican opponents will trot out the tired shibboleth that the CRA "caused" the subprime mortgage crisis. As we argued last December, that argument is simply not sustainable by anyone other than those who favor their Kool-Aid laced with cyanide. Even Sheila Bair and John Dugan agree on that point.

As The Washingtonn Independent noted last week, the Federal Reserve Board recently offered further support for our position.

Amid the ongoing debate over mortgage lending reform, a top federal regulator took a seat before Congress last week and debunked the myth — popular among conservatives — that a law encouraging loans to low-income communities has been largely responsible for the nation’s housing crisis.

“I can state very definitively,” Sandra Braunstein, director of the Federal Reserve’s consumer and community affairs division, said during a House Financial Institutions subcommitte hearing Wednesday, “that from the research we have done, the Community Reinvestment Act is not one of the causes of the current crisis.”

[...]

She cited a Federal Reserve Board analysis which found that, in 2006, CRA-covered banks operating in CRA-targeted neighborhoods accounted for just six percent of the risky, high-cost loans largely responsible for the housing crisis. Mortgage loans are considered high-cost when interest rates are at least three percentage points higher than those of conventional mortgages.

“So I can tell you,” Braunstein said, “if that’s where you’re going, that CRA was not the cause of this loan crisis.”

[...]

“Our analysis of the data finds no evidence, in fact, that CRA lending is in any way responsible for the current crisis,” Fed board member Elizabeth Duke said in a speech before representatives of the banking industry last month. “The CRA is designed to promote lending in low- to moderate-income areas; it is not designed to encourage high-risk lending or poor underwriting.”

Advocates are quick to point out that the CRA includes a safety and soundness provision that discourages bad loans. “It has a built-in check saying that [banks] have to lend in a way that’s good for the institution and good for the community,” said Danna Fisher, legislative director at the National Low Income Housing Coalition.

Of legitimate concern to banks, however, is that Johnson's bill would require regulators to determine whether lenders are adequately serving all minorities, not merely low income communities, as is the case under the existing CRA. The addition of new criteria will give extortionists consumer advocacy groups more ammunition to extract money concessions from banks that want to merge, acquire another institution, or branch. One more layer of cost of regulatory compliance at a time when pressures on banks' bottom lines are greater than ever. The fight should be over whether this extension of federal law is necessary in light of its costs, and the battle ought to be waged on statistical evidence, not on ideological cant.

There's plenty of fodder to feed a "healthy debate" about the extension of CRA to new areas and covered lenders. Raising straw men won't give credibility to the law's opponents.

TARP Derangement Syndrome

The successor to "Bush Derangement Syndrome" among the chattering and political classes might soon be "TARP Derangement Syndrome." With the House and the Senate rushing through punitive legislation to punish bonus recipients at AIG, and in the process scooping up a number of other executives and employees of financial institutions other than AIG that took TARP CPP dollars and other forms of federal government aid, the public hysteria to trace TARP dollars through the golden goose's gullet is rapidly approaching ludicrous proportions.

The latest example is the dust-up caused by the Cleveland Plain Dealer breathtakingly breaking the news today that giant Ohio-based thrift Fifth Third Bank, a CPP recipient, had...gasp...conducted a marketing campaign that included a sweepstakes program that distributed $900,000 in prizes. TARP dollars to ordinary citizens in the form of a sweepstakess! Outrageous!

Or so intimates the main steam media, at any rate.

The sweepstakes idea was concocted a year ago, and the contest began before the TARP program was even announced. As Joe Champline, Fifth Third's Vice President of marketing correctly noted, "Once you start a sweepstakes, you must continue it and declare winners."

Not that compliance the legally binding obligations is of concern to members of Congress. Yesterday on NBC's Today show, I heard New York Democratic Rep. Carolyn Maloney being badgered by substitute host David Gregory about the fact that AIG was bound by legally enforceable contracts to pay the bonuses, after Rep. Maloney had asserted to Gregory that AIG's management should not have paid the bonuses. Rep. Maloney, apparently ignorant of the 5th and 14th Amendments to the US Constitution, as well as the difference between government and private parties, and caring not a fig for the concept of "a deal's a deal," said that the government abrogated contracts all the time ("renegotiated" might have been the word that she used), and she gave bankruptcy court as an example. The utter idiocy of that argument as applied to a private party like AIG, as well as her lack of understanding that even the US government can't abrogate private contract rights without due process of law, demonstrates that "Peter Principle" Maloney has reached her highest level of incompetence as a member of the House Financial Services Committee.

In the case of Fifth Third, we had Ohio Republican House member Steve LaTourette, a TARP hater from the get-go, jumping in front of the microphones to bloviate about the matter.

"This sweepstakes might not use a dime of bailout money, and might be a legitimate and successful marketing tool for the bank, but something that passed the smell test prior to the bailout might not afterward..."These institutions should walk on eggshells and really gauge what public reaction to their choices might be, because it's not good enough in this climate to say, 'I promise we didn't use taxpayer money.' "

How would a denizen of one of the rankest environs on the planet, the US Congress, be qualified to judge a "smell test"? I would have thought his entire world would smell like sulfur 24/7/365.

What is "good enough" for guys like LaTourette and the people he represents? What's next for banks that accept TARP or other government aid? Do marketing geniuses like Maloney and LaTourette get to micromanage what is and is not an appropriate marketing expenditure? Is any marketing expenditure appropriate? Better yet, if it's "public outrage" that drives what is and is not appropriate, just put all bank marketing budgets up for a public vote. That's the only truly safe way not to have "public outrage" fuel a public brawl in the public media.

I'm all for having Congress call for the average citizens who won money in that sweepstakes up to Capitol Hill to be grilled by the mouth-breathers there about how the winners spent the money they won in the "scratch off," and/or why they think that they're entitled to keep the dough. Better still, let's pass special legislation that those "winners" who don't return the money to Fifth Third pay a 90% excise tax on the winnings.

How low can we go?

Creative Coercion Curtailed

Cindy Cooper got her head handed to her last week in Buffalo. Whether she'll shuffle off, dry up and blow away is anyone's guess. If she comes back for more, I'm assuming that the judge will hand her not only her head, but her ample posterior.

As faithless readers may recall, last August we detailed the oh-so-creative efforts of Ms. Cooper, an attorney in the Buffalo, New York, City Attorney's Office, to try to manufacture a claim that lenders who had foreclosed on a borrower's mortgage loan, but not yet obtained title to the property nor exercised control over the property, were somehow "owners" of the property and subject to liability for its condition, "and that the lenders were not only liable for common law nuisance and city code violations for the specific properties on which they had foreclosed, but jointly and severally liable for creating a public nuisance." We thought then that her claims were groundless, and the trial judge agreed.

In what one trial lawyer described as "a smart approach," Judge John M. Curran, "instead of addressing the core issue whether a lender who commences a foreclosure proceeding, but never foreclosing is the equitable owner, simply found that the allegations failed to state sufficient facts" on which to base a claim. He dismissed the claims without prejudice and gave Ms. Cooper until the end of the month to come up with sufficient facts and amend her complaint.

Good luck with that, Cindy.

I suppose that some trial lawyers for the defense made a bundle off of this abuse of prosecutorial discretion. No other purpose was served than that a "creative" nerd got to harass lenders with a "creative" complaint, based upon the kind of antics that used to get nerds hissed, booed, and laughed at by the cool boys and girls in law school, the latter being the ones currently doing productive work (if there is such a thing) in the practice of law, while the subjects of derision do the kinds of jobs where they spend the taxpayers money paying back the popular kids for all the slights they suffered in their neurotic formative years. It's these repeated patterns of dysfunctional behavior that make one long for foreign climes free from a lawyer-per-capita ratio approaching meltdown proportions.

A trial lawyer close to this waste of time and money expressed the hope that "this will be the end of it." I also hope that, but I never hold my breath.

It's an interesting, though unsurprising, sidenote that while Ms. Cooper's initial complaint received all kinds of favorable hometown press, the dismissal garnered hardly a whisper.

The Wheel Will Turn

Sen. Charles Grassley is playing a deadly game. I never believed for an instant that he was literally advocating that AIG executives commit suicide. However, there's no question that he's playing on the public's anger, riding it like Laird Hamilton on the Banzai Pipeline, and attempting to steer that anger away from he and his colleagues of both political parties. In this practice, he's in "good" company.

Barney Rubble Frank and Chris Evert Dodd hopped up on this soapbox and ranted with their usual abandon.

"I warned them this would be met with an unprecedented level of outrage," Sen. Christopher Dodd, D-Conn., the chairman of the banking committee and part of a group of senators who pressed Treasury Secretary Timothy Geithner to stop the bonuses, said Monday.

Rep. Barney Frank said Monday that it may be time to fire some people at the insurance giant.

"These people may have a right to their bonuses, but they don't have a right to their jobs forever," Frank, a Massachusetts Democrat who heads the House Financial Services Committee, said on NBC's "Today" program.

"The federal government now is the 80 percent owner (of AIG)," Frank said. "These bonuses are going to people who screwed this thing up enormously. Since the federal government now essentially owns that company, maybe it's time to fire some people."

Even "The One" has been front and center with expressions of his "outrage" at bonuses paid to AIG employees.

“Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?” Obama said.

“In the last six months, AIG has received substantial sums from the U.S. Treasury, and I’ve asked Secretary Geithner to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.

“I want — I want everybody to be clear that Secretary Geithner has been on the case.”

The last utterance prompted Housing Wire's Paul Jackson to comment wryly,"Oh, good. Geithner’s on the case. We can all rest easy now."

While The Washington Post opined that the controversy over the bonuses was "blowing back" on Obama, and could very well lead to no more bailout funds being authorized by Congress, the "blow back" on The Change We Waited For is nothing compared to what I think awaits members of Congress, including Grassley and his fellow Republicans. We got more than a taste of it in various comments sections of newspaper sites and blogs today, and Rod Dreher, editorial writer for The Dallas Morning News, and a writer who certainly leans right, fanned the flames of the backfires today on his blog while discussing Grassley's call for resignation or death.

But he inadvertently raises a point worth pondering if failed top financial executives should consider killing themselves in shame over their disastrous governance of their companies, why shouldn't failed top politicians apply the same standard to themselves? Why wouldn't they at least consider putting a bullet in the brains of their careers? America has been badly governed, at least on the financial front, for some time now. How many US senators are lining up to quit in self-disgust?

A large segment of the public is wising up to having been duped. Yes, Joe Six pack is angry at tone-deaf clowns like those running AIG, as well as at greed-heads and others among the class of those who believe that they're entitled to wealth beyond all dreams of avarice simply because, you know, they simply ARE! As this crisis drags on, and people under the top echelons of the upper class of this country continue to feel like they've been screwed without even dinner and a movie, they'll support the government's efforts to inflict pain on all kinds of convenient scapegoats.

At the same time, I think that "average folks" are as disgusted with the politicians and their role in creating the current "situation." Especially angry are the vast majority of Americans who aren't in default on their loans, but might be some day soon if the layoffs continue, and who feel that "The Watchmen" were blind, corrupt, inept, or all of the above. A guy named Robespierre unleashed a reign of terror on his enemies during transformational times, thought he could control it, but it turned on him and his crew. He tried to commit suicide by shooting himself in the head, failed miserably, and spent the last few hours of his life with his jaw hanging off his face before the new powers-that-were chopped his head off.

That's the flip side of national leaders stoking the public's anger, then using it to pursue their own agenda. We're supposed to have national leaders who lead. Instead, we have venal, feckless, cynical, snake oil salesmen who follow and feed the public's emotional reactions. They try to stoke the hunger of the public to lash out, then throw it red meat, sacrifice others, and hope that they themselves are spared.

I wouldn't count on it working for long, Chuck, Chris, and Barney. Sooner or later, your turn is coming.

UPDATE 3/18/09: Evan Newmark of The Wall Street Journal's "Deal Blog" (paid subscription required) agrees with me, right down to the Robespierre reference. When you're frothing at the mouth, it's somehow comforting not to froth alone.

Take My TARP...Please

TCF CEO Bill Cooper is mad as hell, and he's not going to take it anymore.

The man who recently told the Treasury Department that he's got a bad case of seller's remorse and wants to give back his bank's CPP investment, got everything that's been bugging him about the nation's financial mess off his chest. According to BankThink's Rebecca Sausner, who listened to Cooper rant at yesterday's SourceMedia’s Best Practices in Retail Financial Services Symposium in Florida, it was a rare glimpse into the utter honesty of man who's been around long enough that he's not afraid of anything other than running out of Viagra.

One of my personal favorites was his no-holds-barred take on the federal government's role in the meltdown.

“I believe at least 90 percent of this crisis was government driven, created by the government through bad monetary policy, the wrong kind of regulation, the whole impetus for managing economy, lending to the poor, encouraging what was in effect bad lending. All of this stuff was encouraged by the government, and a lot of honest bankers went along with it and didn’t make good judgments.”

Another two I loved, because I find the filing of Suspicious Activity Reports (SARs) to be, for the most part, an egregious waste of time, were these:

On the value of SARs to national defense in the hands of the BSA regulators:
“What the hell? These guys couldn’t find this loan problem when it sat in front of them; they’re going to find a terrorist?"

“Does anybody think there’s not enough regulation in the banking business?” Cooper asked, to a burst of laughter. But, he argues, the regulation is misfocused on issues like BSA instead of fundamental safety and soundness. “They come in and audit the living crap out of you on BSA. Have you guys lived through this? It’s a life/death experience if you flunk BSA. …The only terrorist the BSA program has caught is Spitzer with his pants down.”

And who could resist a Henny Youngman moment.

"I thought swaps were what guys did with their wives in California."

Read them all. They're priceless.