Jubilee Justice

The Banks Get it Wrong—Again

The Economist reported recently that a number of the larger banks that received billions in bailout money last fall and are now paying back a portion of it are practicing a little “revisionist history” by trying to claim to their stock holders that actually they never really needed it in the first place. That’s baloney, of course, but they feel like they need to lie to us again (and again, and again) in order to get back to their normal state of squandering our hard earned economy on their global roulette wheel.

As examples, they report that "Jamie Dimon, the boss of JPMorgan, has fantasized about sending an ironic accompanying 'Dear Timmy' thank-you letter to America’s treasury secretary, Tim Geithner, saying 'We hope you enjoyed the experience as much as we did.' The boss of Wells Fargo has called the solvency tests 'asinine.'

In addition to calming the stomachs of their investors they are also (one presumes) trying to convince regulators that their banks are just fine, and that they should spend all of their time clamping down on those weak banks that really need the regulations. JP Morgan claims, for example, that it really didn't need the money in the first place and that it was forced upon them and even though in great measure they are now able to pay it back because they used TARP money to pay off creditors and liquidate bad loans, and because of that are starting to make money again, none of that had any thing to do with their taking the TARP money. They say that "out of fairness" the regulations should be lifted.

The regulations are much the issue. The banks are not allowed to pay their CEOs hundreds of gazillions an hour if they take government money, and they believe that they can never get back on their feet again unless they pay their CEOs hundreds of gazillions an hour—especially if the CEO is a great success in driving the bank into the ground. JPMorgan has made this point forcefully, but some of the others have made the point less tastelessly.

In addition to the outright grants to banks, the U.S., government also stepped up and at incredible expense, purchased from the banks, hundreds of billions of dollars worth of some of the worst, most godawful, stupid, foolish, immoral, sleazy, loans ever made. We saved their butts. If they had tried to pay the bills based on the value of some of those loans and securities they’d all be following Lehman Brothers to the poor farm, and now these guys are claiming to their stock holders that the plan was never necessary in the first place.

Let me be clear: I'm not sure it was necessary either. Part of me thinks we should have just put the bastards in jail and taken over the banks. But for them to take the money, pay down the bills, be rescued from the abyss, and then say the silly government shouldn't have intruded into their line of work is slime. It gives snake oil a bad name.

This new attitude is wrong because even if their particular bank was more or less stable (and that’s relative, given the fact that all of them had lost money, some were "zombies": the walking dead). There was an almost total loss of confidence in the market. Nobody was buying anything. If the government had not stepped in the market itself would have failed, not just the high roller cowboy banks that created the mess. All of the banks in the system benefited from the bailout, even those that were relatively better off.

Also, it could be dangerous because it (by intention) could distort the way that the new regulations are drawn up. What they are arguing for is a weak set of rules for the "healthy" banks (ahem, relatively speaking, of course) and a more stringent one for the "sick." It would give the false impression that their business model had been successful while that of the "sick" was not. Whereas in reality, all were complicit at some level in creating a system of human greed that violated everything their Sunday school teacher ever told them when they were kids (back before they were confirmed and driven out of the church). Allowing the attitude that successful greed and sin is vindicated, but unsuccessful greed and sin is not, just kicks the can down the road for real reform.

New regulations—executive pay that has some basis in reality, less risk taking, more transparency, better incentives for growth—should be applied to all banks consistently, and not to just the handful of weaker banks that were the bad apples on the bottom of the barrel.