Banks return aid to cut federal strings
Some banks are wary of the regulatory strings attached to bailout funds, so they're lining up to give their money back to the government. Jeremy Hobson reports.
The headquarters of Goldman Sachs Group, Inc. is seen at 85 Broad St. in New York City. (Mario Tama/Getty Images)
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Kai Ryssdal: The guy in charge of the government's $700 billion bank bailout had a warning for Congress today: Don't force banks to make loans that they -- the banks -- think are too risky. Neel Kashkari's a holdover form the Bush administration. Former Treasury Secretary Henry Paulson hired him to run the TARP back in October.
Today, though, he was on the receiving end of House members' telling him they're not happy with how banks are spending their money. When it was his turn he channeled the banking community back to them about all the strings attached to TARP money, and the anger that has convinced some banks to just want to give the money back. Marketplace's Jeremy Hobson reports from New York.
JEREMY HOBSON: So far, 489 of the nation's 8,000 banks have taken money from the Treasury. But Neel Kashkari says members of Congress need to back off telling banks how they should be using the cash.
NEEL KASHKARI: However well intended, government officials are not positioned to make better commercial decisions than lenders in our communities.
Even if those lenders spent money on executive bonuses or company golf tournaments? Well, remember, not all the banks who got TARP money wanted it. They were asked to take it so no one would know which banks really needed it. And now, says analyst Andy Stapp at B. Riley . . .
ANDY STAPP: They're all getting painted with the same brush, and it's just not the case.
The banks lining up to give the money back range from small players like Iberia Bank of Louisiana to big dogs like Goldman Sachs.
Karen Petrou is managing director of Federal Financial Analytics in Washington.
KAREN PETROU: The stigma attached to TARP money grew ever more costly, leading the banks who felt forced to take it in the first place to say, "I want to give it back and I want to give it back now."
Well, maybe not now. Of the handful of banks who want to return the TARP funds, not all have a check ready.
PETROU: Some want to give it back all at once right away. Others do want to phase it out, to give them that capital buffer, to support new lending if loan demand spikes before their ability to recapitalize improves.
In other words, would 12 easy payments of $20 million do? But we'll take our bank back now, if that's OK.
In New York, I'm Jeremy Hobson for Marketplace.
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From Boca Raton, FL, 03/12/2009
A SAD TALE THAT NEVER SEEMS TO END
Analysts predict that the number of nationwide foreclosures for the year 2008 alone will reach one million. Meanwhile, Credit Suisse predicted that there will be 8.1 million foreclosed properties within the four-year period from 2009 to 2012.
I owned and operated a small business in Palm Beach County, Fl for 13 years. In our best years, we employed 15 people. Things started getting slower at the company a few years ago and the economic downturn finished the job. My company is out of business and the building I purchased approximately 5 years ago (for my business) is in foreclosure. The current principal mortgage balance is $499,000. The building has been on the market for over 2 years and the only offers ever received are listed below.
I have received three cash offers to purchase the building from October 2008 to present. My bank had rejected the first two offers and the third offer has been submitted and is pending. In October 2008, we received a cash offer of $350,000. The bank rejected this offer after having the building appraised. The bank claimed to have two appraisals, one at $460,000 and the other for $480,000. I informed my real estate broker that the offer was rejected and about the appraisals. The broker found another buyer in December 2008. The buyer was made aware of the banks appraisal and made a cash offer of $460,000. During the buyers due diligence period, the buyer requested the banks appraisal for $460,000.I requested the appraisal and the bank denied my request. My attorney requested the appraisal and the bank denied that request. The bank would not release the appraisal and said it was an internal document for the banks use only. The request for the appraisal continued until the buyer cancelled the contract. A new cash offer from the same buyer in March 2009 for $370,000 was received and is pending at the bank. If the bank accepts this offer, they will have caused themselves to needlessly lose $90,000. They will certainly sue me and my wife for the shortage. If the bank rejects this offer, they will foreclose on the property and sue my wife and I for the full amount owed. Since my house is cross collateralized, they will also foreclose on my home. It isn’t acceptable for any financial institution or company to make decisions like this. They’re turning down money but still asking for tax payer money (bail out). I believe this is common practice as these financial institutions have company policies that aren’t changing with our new economy. If there are 1,000,000 foreclosures and banks turned down $90,000 each (my scenario $460,000-$370,000), that would equal $90,000,000,000.
How can we provide tax payer bail out money to companies that are so mismanaged?
They’ll be back for more money unless the economy turns around fast or they change their internal practice of loan resolution. As the man who needed a heart was heard to say to his doctor, “Get me the heart of a banker, i.e., one that has never been used.”
From Mossyrock, WA, 03/12/2009
The expletives flew out of my mouth today at Neel Kashkari's comments. My husband and I own a custom meat cutting shop, in our 11th year of business. Our credit score is over 800. Our business is located on the same property as our home. Suddenly, this makes us "high risk" and ineligible for refinancing our home. As I think about this I drive by the mom & pop gas station, the auto repair shop, the well drilling outfit and the accountant's office all with homes at their businesses. The banks just are not lending and that's all there is to it. All this talk of letting the banks make the decisions about who is worth the risk in their communities is poppycock. They do not have any concept of community. For the banks, nobody is worth the risk. They are like the dragons sitting on top of their pots of gold. In the mean time the, gears of commerce are starting to rust. Neel Kashkari needs to get out into the real world or shut his yap. Thank you.
From Los Angeles, CA, 03/11/2009
I have to go with "Daddy, What's a Republican" on this one: ..." a number of bankers who seem to be exceptionally weak on the loan concept. They argue that they don't really need a loan (and all of those unfortunate conditions that come with it); they just need a little time before they pay the money back."
03/11/2009
I think they should be allowed to. Still there needs to be regulation to control ballooning fees at financial organizations across the country. Nothing wrong with making money, but there does come a point when it is unjust.
It is hard to put this in the hands of our legislative branch, as they have proven time and again that they are incapable of reason or cooperation.
Instead of nationalizing banks, why not create a competitor, albeit government controlled, that offers reasonable rates and is sensible with their lending? We, the taxpayers, are spending more than enough money to capitalize such a project.
There are so many economic options that business has yet to use. They, just like Washington, are also unable to use common sense to see through greed.
Fact of the matter, MOST of the subprime loans ARE NOT in danger of foreclosure. That should say something about the inadequacy of the current credit bureaus' rating systems.
Capitalism has its strong points, but we also need to understand how to avoid its pitfalls. Such understanding is not difficult if we can think with more than our wallets.
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