Front page story of today’s NYT discusses the small, well managed, profitable, risk averse banks.

Indeed, as Chris Whalen has so frequently noted, the vast majority of banks in the United States are Triple A by his standards. Its just that these 6,500 banks hold a minority of the total deposits in the nation, with biggest dozen or so banks sitting on 65% or so.

Talk about burying the lead: The Times also noted — in the very last paragraphs — how the big incompetent banks and their very pricey bailouts are screwing these small healthy banks:

“At DeMotte [State Bank, an 11-branch operation in the northwest part of Indiana, Bank President] Mr. Goetz is bracing for a steep increase in a crucial overhead cost: the bill from the Federal Deposit Insurance Corporation, which is basically an insurance fund underwritten by banks.

Last year, DeMotte paid $42,000 into the fund. This year, because of failures in other parts of the country and particularly among national banks, that sum will rise to $500,000 or more.

“Isn’t that the American way?” he says, folding his arms. “Whoever is left standing, whoever was prudent, is always the one who has to pick up the pieces.”

Thus, yet another reason why these bailouts are so absurd: They punish the risk averse and reward the irresponsible . . .

UPDATE, May 12, 2009 10:20am

I emailed William Dunkleberg, who is chairman of Liberty Bell Bank, in Cherry Hill  NJ. It has 4 branches, runs the bank conservatively, (i.e., only makes loans to people who will pay them back).  The FDIC bill more than doubled to $400k range, basically wiping out profits for this year.

Bill writes:

“They ask us to build capital, lend more, but steal all the “material” we would use to do exactly that! And who wants to buy our shares when we keep reporting virtually no earnings even tho we grow 30%!! and have no unusual loan problems! Last year, FDIC also made us (and thousands of others I am sure) add a few hundred thousand to loan loss reserves. We wont lose the money, so eventually get it back, but this clobbers earnings. Then, adding insult to injury, Ben Bernake takes 500bps off of prime, with a third of our loans tied to prime. I have to write letters to our savers saying “because mega banks need cheap money, I have to cut the rate we pay you on your savings”.

More screwing of the little ones in the economy, little banks, little savers! Why do we have to pay for the big bad banks who finance their assets with 25 cents of domestic deposits on the $1 while we have to use $1 of domestic deposits and pay insurance on that? I guess if we could issue debt like the biggies, we’d get a guarantee but of course small banks can’t economically do that. We can’t permanently keep a block of free federal funds on the balance sheet. So, we don’t have that “cheap money” to boost our profits. Gave a talk to Haverford Trust people yesterday and several in attendance were investors in and/or attended little bank board meetings and report the same hits on profits. bummer!

>

Source:
We’re Dull, Small Banks Say, but Have Profits
DAVID SEGAL
May 12, 2009

http://www.nytimes.com/2009/05/12/business/12small.html

Category: Bailouts, Corporate Management, Credit

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

84 Responses to “How the Bailouts Screw Smaller Banks”

  1. Stuart says:

    I find the fact that the NYT buried the lead almost as astounding. The much circulated video of the IG for the Fed, clearly asleep at the wheel is a perfect image for so many we had naively entrusted to mind the store and report on it. The scale of incompetence and corrupted vested interests is almost too large to comprehend and likely one reason for the public’s disorganized bewilderment.

  2. franklin411 says:

    To quote Clint Eastwood: “Deserve’s Got Nothing To Do With It.”

    Every policy choice–even doing nothing–advantages some and disadvantages others. My friend teaches Kindergarten and she says he students are always bringing up examples of how they are being treated unfairly by some action she takes or some action she chooses not to take. Her response is always “life’s not fair.”

    This is apparently a lesson that some never learned.

  3. buermann says:

    What are they expecting? They weren’t paying any premiums at all for nearly a decade. They were giving everybody free insurance and now we’re supposed to be surprised that rates are going up when the plague hits? Sounds American as coco puffs to me.

  4. DL says:

    Geithner has admitted that Greenspan kept rates too low for too long:

    http://online.wsj.com/article/SB124208327133908471.html

    (There is no discussion, however, of whether or not Bernanke is going too far at the present time).

  5. Mannwich says:

    @franklin: You’re a piece of work. So you basically favor trampling smaller successfully run firms to save behmoth, largely incompetent (and borderline criminal) firms or simply doing whatever it takes to “save the nation”? Is that it? You think that’s a recipe for success?

  6. pmorrisonfl says:

    franklin411

    I must say, I am not actually qualified to critique anyone on this board, but you do strike me as one who thinks this is the best of all possible worlds. Would you consider changing your username to ‘Candide’?

  7. DL says:

    Meredith Whitney said (5/11/09) that the bank rally is running on fumes, that earnings are “manufactured” and that earnings in 2010 will be below consensus. However, she stopped short of encouraging people to short the bank stocks (She did, however, suggest shorting retail stocks).

    http://www.cnbc.com/id/15840232?video=1120084432&play=1

  8. franklin411 says:

    @Mannwich and Morrison:

    You teach your kids that life is fair?

  9. Marcus Aurelius says:

    franklin:

    Life may not be fair, but we’re not talking about life — we’re talking about insurance premiums. Citing the vagaries of life does not trump the government’s inappropriate application of responsibility and liability to those whom the responsibilities and liabilities should not be applied. Policies are not random acts, nor are they merely whims, nor are they created by fiat. In many situations, they are clearly right or clearly wrong. In this case, the policy is clearly wrong. Maybe we should simply do away with the concept of just laws and let our government rule by dictat.

  10. greg says:

    One day in the not to distant future, Meredith Whitney may be right. Right now I think she is just channeling Abby Joseph Cohen circa 2000.

  11. dead hobo says:

    I think it’s finally here. The S&P had a little free fall moment. Oil didn’t break $60. The S&P i’s still going down and it looks erratic, like the sellers are in control, or the lack of buyers is here more likely. I wonder if GS and the SLP will so happily provide liquidity in a market that wants to go down, or will it move to the back of the crowd and just hang out, hoping nobody notices it? I bet it’s fun to make money when you are in control of a market rally. What’s it going to do on the return trip?

  12. Chubby Davis says:

    All men are created equal…. ha ha ha!

    STAY THIRSTY MY FRIEND!

  13. theseeker says:

    And what of those who perpetuate the unfairness? Seems that there was a time when people were held to account for malfesance (generally) until they became too numerous and well connected. It appears that no one is interested in putting a halt to the CRIMINALITY.

  14. Transor Z says:

    People, people…

    It’s called “pooled risk.” This is why the AIA (American Insurance Association) advocates reporting cases of known insurance fraud because of the impact on all premiums.

    And it’s why the AIA and individual insurance companies offer safety programs for motorists and homeowners as well as compliance advice for commercial clients.

    Same thing in the banking industry. Both national structures like the Federal Reserve and individual banks are deeply concerned about the impact that risky practices could have on the entire industry. This is why they have taken such a proactive leadership role in policing their industry to root out fraud and speculation, as well as keep depositors informed so that they can make intelligent banking choices.

    What? No? Oh . . . I thought . . . Nevermind.

  15. pmorrisonfl says:

    franklin411 writes:
    > You teach your kids that life is fair?

    What Marcus Aureluis said.

    You may say I’m a dreamer, but I’m imagining a world where gamblers (C, BAC, JPM, GS,…) who make bad bets eventually run out of money instead of being able to borrow more on my account (Fed, Treasury). Perhaps I need a graduate education to understand why that’s such a fantasy.

  16. DeDude says:

    I teach my child that she should be angry and protest whenever something is not fair. And the outrage should be equally strong whether she or someone else is the victim of something unfair. We are still working on the last part.

  17. DeDude says:

    Now what really would be fair is to have a separate insurance pool for the “top big to fail” and much higher premiums for banks getting into risky stuff like investment banking and all the other high-risk high-yield types of activities. Since FDIC has a monopoly they should be forced to evaluate and price their insurance according to risk.

  18. Stuart says:

    franklin must be BB or Kudlow for such a cavalier attitude towards sanctioning raping the little guy. Just because it happens doesn’t means its permissible and should be tolerated and under any circumstance dismissed as c’est la vie or worse yet, condoned.

  19. Bruce N Tennessee says:

    Franklin is one of three possibilities:

    He’s 12 years old, and bright, and knows a little about investing but just a little of the lingo.

    He’s a trader, and enjoys pulling our chain.

    He’s really in school, and has no grounding in common sense. Has swallowed every opinion his profs have offered to date.

  20. scm0330 says:

    franklin lives in a fantasy land of statism. he knows not from where revenues to run our government come – it’s rather an abstract construct of “big companies” and “rich people”. policy actions don’t have consequences. check that; actions of the Obamaites have only virtuous consequences. we should hear him extolling soon about results from the latest Five-Year Plan. production up! living standards never higher! less bad is the new good! the road not taken is the road to perdition! the goals of the State have been partially achieved, but there is much more work to be done, for the glory of the Collective! living in the academy will do that do a guy.

  21. rktbrkr says:

    This sounds like a variation of Gresham’s law:bad money drives out the good. In this variation bad banking practices are rewarded and good practices are punished. The larger the scale of the bad practices the richer the rewards to the incompetents. The methods of rewarding these bad practices needs to be opaque and the identities of the beneficiaries need to be concealed as long as possible.

  22. Onlooker from Troy says:

    DeDude http://www.ritholtz.com/blog/2009/05/how-the-bailouts-screw-smaller-banks/#comment-170741

    Indeed, that would be the fair thing. Unfortunately they’re drowning in their crappy loans and need to suck as much capital as they can from all quarters to survive. That’s our “strategy”, to let them “earn” their way out of it. What a joke, their “earnings” are simply the result of rigging every possible thing to funnel money to the big banks, at the expense of savers, the prudent, and, of course, future generations.

  23. pmorrisonfl says:

    I wonder whether ‘Too big to fail’ also means ‘Too big to punish’. More usefully, I hope, I wonder whether there’s a way to ‘help’ a TBTF bank become small enough to fail without depending on assistance from the bank or the government to do so. Could peaceful, legal, ethical collective action engineer a reduction of systemic dependency on the big players? If we got every depositor to move their accounts to smaller banks (than the big 19), would that be enough? What if we had to treat government as an adversary in this? Answering these questions would be worth a graduate education, I think.

  24. DeDude says:

    Onlooker

    Yes it is all a game of who will take the losses. Since it is politically impossible to let the taxpayers take them directly, it has now shiftet to that those taxpayers who save money will pay. The one thing that is for sure is that those who caused this mess will not be paying for it. They took their bonuses and are long gone – now we just have to figure out who will be how much victimized.

  25. aitrader says:

    Seems like there may be a bigger story here. The 65% quoted are the “big banks”, most of whom need more capital according to the recent stress test.

    The banker quoted in the article says the new FDIC and Fed requirements have pushed the remaining 35% of “little banks” to the edge of insolvency.

    We’re adding 1/2 million unemployed monthly. When to these “stable” smaller firms start to go under due to prime loan defaults and lack of savers? At 10% unemployment? 12%?

    Why put your money in a savings account or CD when the market is rallying 30%?

    Dark, dark storm clouds ahead. Rain gear recommended.

  26. Marcus Aurelius says:

    Laying all of the problems for our economy at Obama’s feet, as well as kvelling about the poor choices he has made in dealing with the situation (all of the potential solutions are poor, except, of course, the ones I offer), is disingenuous and specious, at best. Earlier, someone said that they should have voted for McCain. I doubt any of us would be any the better had McCain been elected. Were any of us realistically expecting this to be pain-free and uncontroversial?

    I hope Obama eventually changes his mind and removes those he has chosen to direct us out of this noxious swamp. The man is intelligent, but mistaken. Everyone should be given the chance to learn from their mistakes. He still has more than 3.5 years to get it right.

  27. jc says:

    RE plunging in the bubble states even during foreclosure moritoria, wonder how this comapres to “worst case scenario” of puff ball stress test?

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aKkPN8keugMw&refer=home

  28. shakazulu says:

    250K FDIC insurance on deposits is set to expire end of the year as far as I can tell. Amusing when combined with recent news that the administration is looking to up its moves on monopolies in business.

  29. pmorrisonfl says:

    MA writes:
    > The man is intelligent, but mistaken.

    I see this idea often cited, often using the appointments of Geithner and Summers as examples. I do wonder sometimes, as I did with the previous administration, whether this is more calculation than miscalculation. Is it possible that what we perceive as mistake is intentional on the part of President Obama? I am of the view that the leader is ultimately responsible for the actions of his ‘crew’, and that those actions are a direct reflection on him.

  30. Paul Jones says:

    And yet these small bankers aren’t using their presumed political clout and community prestige to DO ANYTHING about it. These executives need to put the golf clubs away and start chaining themselves to the White House fence. We are too comfortable, like fattened kine.

  31. franklin411 says:

    No time to give any serious reply…I’m off to proctor an exam. However:

    @Bruce
    Have I been downgraded? I thought I was Lloyd Blankfein?

  32. Marcus Aurelius says:

    pmorrisonfl:

    How much can one person know about everyone and everything? I don’t think O (or any of the other politicians who ran for POTUS) had any clue as to what was fixing to happen in the economy. Those who read TBP did, but pretty much everyone else I know — even the really smart, well-informed ones — were clueless.

  33. [...] Bailing out mega banks is sticking it to the small, well run banks [...]

  34. Cursive says:

    @f411 10:19

    Welcome to moral hazard. No, life is not fair. We are not arguing that life should be fair. We are arguing that if you send out invitations to be raped and pillaged, then there are a lot of low-life scum who would happily oblige with the raping and pillaging of you. I am squarely against anyone raping and pillaging anyone else. I recognize that life brings its share of disappointments and tradegies, but I still try to create a better place. I want to improve the human condition, not wallow in its dark side. As for rhetorical lazy brains who excuse bad public policy as another example of the natural inequities in life, I would pose this question: Was it worthwhile to confront and end the institution of slavery on American soil?

  35. DL says:

    Marcus Aurelius @ 12:11

    I think that Bush was hoping the sh*t would hit the fan after the election (but not before).

    It almost worked.

  36. Cursive says:

    @ f411 12:10

    Great, the proctor of a college exam is on this board expressing thoughts on moral equivalence. Par for the course in Academia these days. Franklin, have you caught any cheaters during your time as a proctor? If so, what do you do?

  37. donna says:

    Life is not fair, but evolution favors those who can adapt. The smaller naks will adapt to the changing climate and succeed, the large monolithic banks will not and will die. Small banks aren’t depending on a bailout and rewarding their execs with huge bonuses. They’ll make it work because they have to or they go under. The big banks, the zombie banks, don’t know they are dead yet — but they are.

    I’ll never, ever have my money in a large bank again — in fact haven’t for over 25 years. Others are now learning to do the same. Credit unions, local banks — only way to go.

  38. Bruce N Tennessee says:

    already commented about my banker.

    47k FDIC 2007

    180k 2008

    1.8 million 2009..

    I’ll try to see what the latest is next week…up to my eyeballs in alligators today.

  39. cvienne says:

    Wait guys…FRANKLIN finally made a funny (10.19)…

    “Deserve’s got nothing to do with it”…I love that line from that movie…

    second best only to…

    “I’m here to see a man about a dog”

  40. patient renter says:

    Thus, yet another reason why these bailouts are so absurd: They punish the risk averse and reward the irresponsible…

    I feel the need to point out that this is ever and always an argument against any type of bailout.

  41. Bruce N Tennessee says:

    Franklin:

    I am sure you are likeable in your own special pollyanna way…but you must understand that your perspective is skewed…as I have already mentioned, when I was working on my doctorate around 1975…my fellow students and I didn’t even know there was a recession. I was oblivious.

    Now, having been on my own since 1977…I look at things a bit differently…I can see the reasons many would prefer the warm, embracing hand of the state to tuck them in at night. But in the end, this type of socialism is stagnant.

    I think Churchill said it…

    If you are young and not liberal, you have no heart.
    If you are older and are not conservative, you have no brain.

    Hope you didn’t have to expel too many cheatin’ students today…

  42. Onlooker from Troy says:

    BNT http://www.ritholtz.com/blog/2009/05/how-the-bailouts-screw-smaller-banks/comment-page-1/#comment-170773

    I think we’re all going to really learn what this whole zombie bank thing is about. I don’t think there’s any kind of appreciation out there. They are going to (already are) suck the life out of this economy. A capital black hole.

    No good way out of this crap hole we’ve driven in to, but propping them and their stakeholders up is NOT the way. It’s gets redundant but these things have to be reiterated in order to finally get through.

  43. cvienne says:

    Zombie Banks…

    First of all BR…That you tube video on zombie banks last week was hilarious…

    Anyway…Zombie Banks

    Japan 1989…Nikkei 40,000
    Japan 2009…Nikkei 8,500 (after 2 decades of QE)

    S&P 2007…1576
    S&P 2027…Refer to NIKKEI

    Oh wait…This time it’s different…RIGHT?

  44. willid3 says:

    not sure how to take the life isn’t fair debate. it seems to only be unfair for some if it disadvantages ‘small’ business(banks), but it doesn’t apply to many others (such as employees).
    and it would seem likely that the FDIC didn’t really price their ‘insurance’ correctly. can’t say that is a big surprise either. seemed like we were living in a ‘fantasy’ world for about a decade where things couldn’t ever go wrong, so who needed to have insurance right? and those in charge pushed to keep regulations and required insurance low so they could make big bucks (then) and now that the dream has popped. every one is having to pay the piper. we have a similar thing in here in Texas. for several years, the state unemployment fund hasn’t been collecting money. and now for some reason, its about to collapse.

  45. Transor Z says:

    When it comes to “fairness” as a legal notion, I’ve always boiled it down in my own mind to “you play, you pay.” IOW, predictable consequences are an inherent part of my understanding of fairness. “Life isn’t fair” is not mature or helpful argument in this contex, IMHO.

    “Fairness” in the sense of a predictability that allows business to be conducted in a stable environment is a more worldly kind of “fairness” than my toddler stamping her foot and saying, “That’s not fair!” In most cases it’s up to Congress and state legislatures to tweak the balance of play (i.e., the tilt of the playing field to one side or the other) under legal/regulatory frameworks. For example, the Bankruptcy amendments of 2005 tilted the field toward creditors.

    What we have with the FDIC premium increases is a “logical” development in a dumb (in the technical sense, or mindless) insurance system that hasn’t taken systemic risk seriously for a long, long time. And hasn’t adapted to new types of risks after repeal of Glass-Steagall. Congress can, however, require FDIC to analyze risk and adjust premiums accordingly just like every other insurer does. BoA would not qualify for the “safe driver discount” rate. TBTF banks point to economies of scale as a reason for being — fine, then economies of scale will permit them to shoulder a proportionately higher premium as a cost of doing business.

  46. The Curmudgeon says:

    And if it angers you that big banks are getting subsidized by little ones, they (well really, as in all this, the taxpayers) are also subsidizing the automobile financing industry, and its hedge fund investors. As the WSJ reports today, GMAC, which as you may recall was changed into a bank in a flurry in late 2008 in order to save it from itself, is apt to require about $20 billion from you and I (presuming “you” pays taxes, but I think that doesn’t include grad students proctoring exams).

    Cerberus (remember…the Chrysler hedgies) owns 51% of the big, bad bank known as GMAC. GM owns the rest. The taxpayers fund it all:

    http://online.wsj.com/article/SB124208322394408465.html

    The true headline of the NYT story should be:

    Big Zombie Banks Take Over Federal Government to Insure Steady Supply of Taxpayer Brains to Eat

  47. Pat G. says:

    The government should have let the big banks implode. Justice would have been served as no one is TBTF and moral hazzard would never had become an issue. There are two sets of laws and rules in this country, one for the elite/government and another for the rest of us. That isn’t part of the “life isn’t fair” debate, it’s just plain not right. Based on this dichotomy, how do you teach your children to ignore it by doing the best that they can when they recognize it early on and realize that the odds are stacked against them?

  48. batmando says:

    @ Bruce
    RE franklin

    He’s really in school,… bright,… knows a little about investing,… and enjoys pulling our chain.

  49. DeDude says:

    Marcus @ 11:54

    Yes the idea that an old dottering fool like McCain, listening to the advise of the same criminally negligent GOP cabale whose failed ideology created the mess, would have been able to do anything but dip us completely into the sh*thole – is simply absurd. Obama is not perfect, but we tried the alternative and that is what got us into all this trouble in the first place.

  50. batmando says:

    @ Marcus Aureliusat 12:11 pm
    “How much can one person know about everyone and everything? I don’t think O… had any clue as to what was fixing to happen in the economy. ”
    Along the same lines, a few weeks ago believe I asked here, though O may have a strong grounding in constitutional law, community organizing and Chicago-style politics, what grounding does he have in economics, academic or practical? Any reason to believe that he has any insight or just buys the line(s) from Sumners et.al.?

  51. I’ll take the other side of this one, and this will unpopular with the large bank haters (not that I’m a fan)…

    The small banks are in this position because:

    a) they were too obstinate to sell out to the large banks back when money was free and everyone got 3x book value

    b) If it weren’t for the existence of FDIC and their inclusion in it, no one would bank with the small banks for fear of a run or failure…the top banks would have more like 85% of deposits

    a community banker not admitting to point b would be the pretty disingenuous

    Cue rotten tomatoes

  52. Pat G. says:

    @TheReformedBroker

    I’m not a “large bank hater”. It’s just that during the last century we seem to have these same types of crises in the financial sector about every 20 years. Therefore, it seems apparent that since these greedy pigs can’t back away from the trough themselves and the government appears either impotent to force them to or complicit they should be allowed to fail. As to your point a) maybe small banks sensed all the greed that was going on in the large banks and realized where it was going to land them in the end. Then figured they’d wait for their opportunity. In the real world that would have worked. A Citigroup could have been replaced by a Sun Trust. But again, so much for being responsible and prudent. Like all of us savers.

  53. willid3 says:

    not sure, but hasn’t it been that all the banks that have failed this year haven’t been big banks? but much smaller? and hasn’t that been what has caused the FDIC to raise rates? and since they have some payouts, they are looking at the remaining banks and raising the premium to cover new losses from any bank? and if A TBTF bank had failed, wouldn’t that have caused banks runs on almost all of them? since that was the response in the 30s to some banks failing and why the FDIC was created to begin with. and while the TBTF banks don’t have 85% of all deposits, they are pretty darn close at 70+%.

  54. w/this: “Indeed, as Chris Whalen has so frequently noted,…(and, at TBP)”

    this post needs to be Filed under the: “Read it Here, First”-Tab of TBP.

    as Whalen, so succinctly, put it: “Tough Tootsies, Little Banks”

    as an aside, watch the apologists file this under: “Un-intended Consequences”

    it’s no wonder the Chesapeake is choked-out on Nitrogen..

  55. DeDude says:

    Batmando,

    He is smart enough to have specifically encouraged dissent within his administration. He has also created a panel of economic advisers that include people with different ideologies. So he is fully aware of the need to consider different approaches and opinions. It may just be that based on the total information he has choosen one of the many solutions; and it just happen to be one most people here does not agree with – but then we are not mainstream (and have limited access to all the information).

    Never discard the possibility that you are wrong and they are right.

  56. DeDude says:

    willd3,

    That is about the funniest thing I have seen in this debate for a long time. Think to big to fail, and way to big for FDIC to handle if allowed to fail. Then think hundreds of billions of government bailout money, not from FDIC but directly from the government.

  57. DL says:

    DeDude @ 2:00

    “the … GOP …whose failed ideology created the mess…”

    It may be true that the R’s had a lot more power than the D’s during the run-up (2002-2005). But it is equally true that there was no Democrat in Congress who called a press conference, prior to the end of 2005, calling for any reductions in leverage (of Fannie or the banks), or of increased transparency of the MBS’s, or increased transparency of the CDS’s. Had there been ONE press conference by ONE democrat prior to the end of 2005, then you might be justified in blaming it all on the R’s. But there was no Democrat (or Republican) who lifted a finger to stop the madness.

  58. cvienne says:

    @DD

    Great so I assume that based on your criteria “He is smart enough to have specifically encouraged dissent within his Administration”…Then all will turn out fine and well…

    So now the White House has become the UN?…The GREAT DEBATING SOCIETY?

  59. cvienne says:

    Why don’t we just ask the UN what we should do about our economic policy…

    I’m sure they can’t wait to debate that one…

  60. batmando says:

    @ DeDude Says at 3:04 pm
    I don’t doubt O is smart, very smart.
    Smart people can have blind spots, biases and weaknesses.
    My question remains unanswered, what grounding does O have in economics, academic or practical? Any reason to believe that he has any insight…”
    Despite smarts and sagacity to listen to diverse views, I still wonder whether he has swallowed the kool-aid of the conventional wisdom of Sumner et.al., or judged the banksta’s had the upper hand and acquiesced to threats their demise would bring down the system , or what?

  61. The Curmudgeon says:

    Obama is the fucking Messiah. Everybody shut up bitching about him and the government because you people don’t have a right to an opinion because either a) your guy lost, or b) you’re not the POTUS, so you don’t fucking matter.

    I’m just sick of all these Obama haters spewing their skepticism and scorn. Why can’t you all just put the happy blinders on like I do and be glad to be a sheep to the greatest shepherd that ever lived?

  62. cvienne says:

    What the “informed” have figured is the following:

    Nobody could give a rat’s ass whether BHO is smart or not…In fact, FINE…He’s a genius…THERE it’s settled…

    The point that we would COLLECTIVELY like to reach is where we actually WIN THE WAR (I’m speaking in ‘economic’ terms here)…

    Sun-Tzu (The Art of War), wrote about how “winning individual battles” was a matter for egotistical generals…Sun-Tzu opted for the strategy that you should be willing to LOSE insignificant battles if they did not meet the objective of winning the war…

    The actions of the Administration thus far have been geared towards “winning battles”, NOT the war…

    Probably most economic scholars would admit in their heart of hearts that CAPITALISM NEEDS TO GET BURNED TO THE GROUND ON A GLOBAL BASIS RIGHT NOW…The system & structure needs to COMPLETELY REBOOT…

    But that cannot be achieved until it is actually in ASHES…

    So right now there exists a POLITICAL agenda which is akin to a general trying to win a war for his own ego (not realizing that it is not helping the objective of winning the war)…

    The BEST thing BHO could do (to achieve a REAL legacy would be to take the proverbial bullet)…Let the whole system collapse on his watch…We will then sow the seeds of rebuilding the future…But these “great intellectual debaters” that he’s surrounded himself with don’t realize that…

    It is their collective ego (combined with lack of insight), which is preventing us from meeting the ultimate objective…

  63. The Curmudgeon says:

    @cvienne…excellent post. The only way to make it better is destroy it first. And they won’t. Until it destroys them and us. Indeed.

  64. pmorrisonfl says:

    > Any reason to believe that he has any insight…

    I count the fact that he invited Krugman and Stiglitz to dinner with Geithner, Summers and himself to discuss economic policy as a proxy for believing he understands *something* about economics. And also somewhat counter to my notion that he hired TG/LS specifically to do what they’ve been doing. I suppose this could be seen as a ‘debating society’, but hearing all arguments seems like a precursor to making the best decisions (It’s not the sole factor, certainly).

  65. pmorrisonfl says:

    Well said, cvienne. But I’d settle for burning down the top 20 banks and letting the other 8,000+ take up the slack.

  66. Curmudgeon,

    you have effectively distilled the main ‘Argument’ of the Obamatons, while on their endless Crusade of support for Stateus QuObama..

  67. cvienne Says: May 12th, 2009 at 3:34 pm

    that’s a fine post, but you should wonder about the Premises, upon which, it is Constructed..

  68. cvienne says:

    @All

    Quite Frankly…I’m not I’m not turned off by Obama just yet (as he still has time to turn it around – as long as he STOPS digging into a deeper hole)…

    If he were to simply SUCK IT UP and LET this economy crash (as everyone REALIZES it must)…I think I would respect him more than any President I’ve seen in my lifetime…

    That’s the conundrum…

    If you’re HE…Do you roll forward trying to simply fulfill a various set of mandates which your party feels are important?…

    OR

    Realizing the BP…Do you take your hands off the wheel & let the more forcible macroeconomic forces go where they are destined to go…Then…be a beacon of guidance in those dark times…

    Don’t be George Armstrong Custer…Be Clara Barton…

  69. batmando says:

    @ cvienne
    “Be Clara Barton…”
    My gut feeling all along has been that whatever resources it takes should be devoted to tending the economically maimed and wounded, while the armies of the night wheel around destroying one another. Funnel the aid for re-building the system through the victims.

  70. Transor Z says:

    @DL:

    Yes, absolutely untrue to lay this all at the feet of the GOP. Look at the equal opportunity campaign contributions from financials to DEMs and GOP; look at Schumer and Dodd’s involvement with repealing Glass-Steagall in 98-99. The compromise version of the Gramm-Leach-Bliley Act passed the Senate 90-8.

    My issue with repealing Glass-Steagall is not that it was, taken in isolation, The Cause of the mess. It wasn’t. But you can’t take it in isolation — it was just one big step in a 30 year trend — and the fact is that Congress did nothing to address new risks created.

    How did the DEMS, who were in the majority at the end of GWB’s second term, respond to Bush-Cox gutting the SEC?

    It’s not about DEM and GOP. It’s about social class.

    http://www.boston.com/news/education/higher/articles/2009/05/12/the_harvard_disadvantage/?p1=Well_MostPop_Emailed1

  71. The Curmudgeon says:

    @cvienne:

    I make fun, but I have no ill will towards Obama, either. But I’ve never blindly followed anybody, ‘cept maybe my high school football coach, but that was only to win a championship, and I’ve grown up since.

    Obama may be brilliant, and I suppose he is, but he can’t see that he’s being sold down the river by a bunch of bankers that hardly have his, or the country’s, best interests at heart.

  72. pmorrisonfl says:

    > Obama may be brilliant, and I suppose he is, but he can’t see that he’s being sold down the river by a
    > bunch of bankers that hardly have his, or the country’s, best interests at heart.

    As was earlier observed ‘How much can one person know about everyone and everything? ‘ , so you may be exactly right in this thought. But why can we see it and he ‘can’t'? It seems possible and plausible to me that this is intentional rather than accidental on his part, independent of what the motives for that might be. I admit I could be wrong, and there are excellent reasons for that. But beyond world-view, I don’t see why people would look only at one side of this two-sided coin.

  73. gordo365 says:

    Also consider – if we had put $700B into these little well run banks at 10:1 leverage – that would have added $7,000B ($7T) credit to the economy. Instead – we borrow and apply $700B to failing banks, and just move us back from the edge of the cliff. Missed opportunity?

  74. DeDude says:

    DL @ 3:15

    The problem with this “but they didn’t protest this (enough)” story line is that it has and would have been a waste of time to call press conferences to protest things. The corporate media had very little time for anything the “not in power” democrats had to say, except if they somehow would be able to block the GOP agenda. When the democrats got so tired of not even being able to talk at committee hearings in the GOP controlled house they created their own committees to have something genuine hearings. How much corporate press coverage of those hearings did you see – I didn’t see anything after the story that simply told us that they would do it. Corporate media would not want to see their corporate masters and their GOP busboys lose control of the message. It is always the responsibility of the party in power to discover and put problems on the agenda. Your claim that there was no Democrat who lifted a finger to stop the madness needs to be modified to “the press never allowed us to hear any democratic protests against the madness, except for a short one time story when the Bush administration blocked (democratic) state legislators from interfering with predatory lending practices.

  75. DeDude says:

    cvienne @ 3:21

    OH MY GOD, yes they are actually collecting facts, and evaluating how “solid” those facts are, and talking about different interpretations of those fact, and what the potential consequences of different intervention strategies would be if one or another interpretation of the facts is correct. And they actually allow people with different “deviant” interpretations to speak instead of waterboarding them? This is SCANDALOUS, what a bunch of wussy communists. Whats next, that they will ignore facts and refuse to hide inconvenient truths?

    PS; You are the most passionate communist so far on this site; lets destroy capitalism together comrade, its about time we snatch victory from the jaws of defeat.

  76. DeDude says:

    Batmando @ 3:22

    It is true that they do not put all the cards on the table, and that we have to guess. But I am a lot more confident in the decisions made by this group (based on their attitudes to dissent and approaches to decision making). Personally I believe that they have made the judgement that the economy is to fragile at this time to allow any of the “to big to fail” institutions to get what they deserve. The recently finished exercise allowed them to get a lot more details of what is hiding in those institutions, so maybe they will now have the guts to set an example or two (or maybe they found that the risk is to big).

    Good thing is he doesn’t seem to believe in these untested “let it all burn to the ground and then by some magic everything will reappear in god healthy solid form” fantasies of the extreme religious right. Nothing from the real world support the idiotic idea that letting the economy or banking system crash somehow is a better way to fix our problems than to fix our problems. It is all based in fundamental religious desire for the end times. An unnessesary loss of trillions of dollars does not make it easier to rebuild, it just make the hole you dig out from bigger.

  77. Graphite says:

    Of all the lame-brained ideas that the New Deal started, federal deposit insurance may very well be the stupidest of all. I wouldn’t trust Sheila Bair any farther than I could throw her. My cash is in 1-month T-bills and a small, liquid, well-capitalized community bank in Chicago that hasn’t taken a dime in TARP money.

    Taking your deposits out of the big money center banks is a great way to give the finger to these bailouts.

  78. Graphite says:

    b) If it weren’t for the existence of FDIC and their inclusion in it, no one would bank with the small banks for fear of a run or failure…the top banks would have more like 85% of deposits

    Actually, I feel much safer with my money in a small bank that actually owns some Treasury securities instead of having my deposits backed by Citigroup’s or J.P. Morgan’s derivatives books. Of course, this is the kind of rational shopping for lower risk that depositors used to do before the federal government stepped in and promised no one would ever lose any of their money.

  79. Graphite says:

    To me, the “life is not fair” argument lends support to a system where depositors who put their money in a fragile, shady bank, just to squeeze a few extra bps of yield, lose every penny if it goes under.

  80. [...] next time someone tells you that “the banks need help,” just refer them to Barry Ritholtz: Talk about burying the lead: The Times also noted — in the very last paragraphs — how the big [...]

  81. [...] 2009 by admin  The next time someone tells you that “the banks need help,” just refer them to Barry Ritholtz: Talk about burying the lead: The Times also noted — in the very last paragraphs — how the big [...]

  82. [...] How the Bailouts Screw Smaller Banks | The Big Picture (tags: bailout FDIC banking insurance TARP) [...]

  83. [...] next time someone tells you that “the banks need help,” just refer them to Barry Ritholtz: Talk about burying the lead: The Times also noted — in the very last paragraphs — how the big [...]