Where is Howard Beale when we need him? Two years into the Greatest Recession Since the Great Depression (GRSGD) and our financial leaders are still telling us that we need to be patient while waiting for our economic recovery.
It’s time to wake up, America. There is no reason to wait. So let’s stick our collective heads out the window and scream in unison, “We’re mad as hell, and we’re not going to take it anymore. We want new leadership. And here is why.”
If there is any symbol that represents the beginning of the GRSGD, it should be the Toxic Asset Relief Program (TARP). Remember TARP? Remember how our American leadership dolled out $45 Billion to Bank of America and Citigroup and another $25 Billion to JP Morgan/Chase and Wells Fargo back in the fall of 1988?
Remember how we were told that these funds were necessary to avoid a complete collapse of our financial system? Remember how Congress did not even know or understand how the money was going to be used or who it was going to before they signed it into legislation? Then remember how nearly all that money was paid back within a year of our leaders’ graciousness?
Well, as a sanity check on that earlier claim, it is interesting to look at the financial condition of the above mentioned “too large to fail banks” as they reported quarterly to the Federal Deposit Insurance Corporation (FDIC) at the time of TARP (09/30/2008) and most recently (03/31/2010).
Exhibit 1 provides a fairly good financial picture of those banks for those two different time periods—eighteen months apart.
Does it strike anyone strange that in the 2008 fall of our despair that Bank of America needed $45 billion to survive when they were reporting an annualized net income of $12.7 billion to the FDIC with $192 Billion in equity on their books? And does it surprise anyone that Bank of America paid back that $45 billion with interest, and now based upon their first quarter results of 2010 are showing increased equity ($219 Billion) and continued profits with a projected annualized net income of $10.5 Billion?
Take a look at the books of the other three banks in Exhibit 1. My question for you, America, is this? How in the world could our financial leadership ignore this information when they started putting their panic argument together for TARP which essentially then started the GRSGD?
During the S&L crisis in the early1990s, there was no where near the panic we experienced as part of this GRSGD. Those of us who were working in the government financial sector back during that period learned very quickly how to identify banks and savings and loan institutions that were in trouble. It did not take a rocket scientist? There were two fundamental gauges: (1) Equity; and (2) Non-performing assets (NPA). If a bank did not have enough Equity to cover losses associated with non-performing assets (delinquent and real estate owned loans), the bank was indeed in trouble.
Clearly the FDIC learned that during the S&L crisis, as my analytical group did while supporting Ginnie Mae with the analytical risk of its mortgage-backed security program. Doubt me? Then let’s take a look at the most recent (03/31/2010) quarterly data submitted for the seven banks that the FDIC shutdown last weekend (taking their total for the year up past the century mark to 102). The same financial factors shown in Exhibit 1 are shown in Exhibit 2 for those seven banks.
Source: Federal Deposit Insurance Corporation (Industry Statistics)
Note the distinct difference between the Equity versus NPA statistics shown for the banks in Exhibit 2 versus those of Exhibit 1. Note the difference in annualized net income amounts and Equity. If that does not make you want to stick your head out the window and scream about our leadership during this crisis, which has now stretched out for nearly two years, then I don’t even think Howard Beale could help us today.
Who came up with the design and rationale for TARP? The same people who came up with design and rationale for the latest financial reform bill, which also missed the target. Yes, the banks had problems, but the problems were not with derivatives (derivatives are a zero sum game with both winners and losers), but with the amount of non-performing assets on the books.
My question now is: If our leadership did not understand banking data and the real “housing” problem that led us into the GRSGD, why should we continue to count on them now? After two years of the GRSGD, we have paid the bill for most of our housing problems (not counting Fannie Mae and Freddie Mac) in unemployment and taxpayer losses.
It is time for our country to move on with new vigor and with new financial leadership. The world may have a right to be angry with our recent fiduciary-irresponsibility, but that same world still looks toward America for leadership and direction, especially in terms of economic direction.
There is no need for patience. Recovery should be now, and the best way to start is to make the necessary “financial” leadership changes at the top and then to implement the 4.0% bond solution discussed in an earlier article I wrote for Business Insider.
Patience is a virtue, but poor performance is not.
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