Penguins

Andrew Sorkin and Joseph Nocera of the NYTimes have mentioned that now that the Treasury is pumping money into the banking system to assist with the de-leveraging process, it appears to be the case that some of the banks are saying “thank you! I can do what I want with the money, right?”  The Treasury has said that the money ‘should’ be used to extend credit so that money begins to flow through the system again.  Pretty clear: credit makes the world go ’round.  Except that at least one bank mentioned in Nocera’s article (JPMorgan) will not be lending to anyone; they will use the funds to make acquisitions, which will make them richer, faster.  Here

In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, “the government wants not only to stabilize the industry, but also to reshape it.” Now they tell us.

Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: “It couldn’t be clearer if they had taken out an ad.”

This new tax break (I’m going strictly on Nocera’s article) allows the acquiring bank to immediately deduct all bad loans on the acquired bank’s books.  SWEET!

When penguins wake up in the morning and get ready to get breakfast, they all crowd to the edge of the ice until someone gets pushed in.  If that one penguin comes back up, it means that there are no killer whales or leopard seals and the water is fine.  Banks are waiting for someone else to go first before they will lend, even though they’re being recapitalized by the government.  (Aren’t corporations supposed to listen to their shareholders, even the preferred shareholders?)  Why does Treasury want banks to eat one another? Also, as the article points out, Senator Dodd is watching to see how quickly money finds its way into the lending pipeline and if, after two weeks or so, he’s not satisfied with the progress, he’ll ask these fine gentlemen (there are no ladies here) to come back up to Capitol Hill and explain themselves.  It would be splendid if they arrived in black tie and tails, a coterie of emperor penguins.  I wonder why he’s waiting two weeks.

AND, David Frum (American Enterprise Insitute) has been making recommendations to the RNC for money/effort management in the last days of the campaign in the Washington Post.

The fundraising challenge only makes things worse. The Republican senatorial and congressional committees have badly underperformed compared with their Democratic counterparts — and the Republican National Committee, which has done well, is directing its money toward the presidential campaign, rather than to local races. (It was RNC funds, not McCain ’08 money, that paid the now-famous $150,000 for Palin’s campaign wardrobe, for example.) This is a huge mistake.

In these last days before the vote, Republicans need to face some strategic realities. Our resources are limited, and our message is failing. We cannot fight on all fronts. We are cannibalizing races that we must win and probably can win in order to help a national campaign that is almost certainly lost. In these final 10 days, our goal should be: senators first.

Makes sense to me, but here is why:

“The government now owns a big stake in the nation’s banking system. Trillions of dollars are now under direct government control. It’s not wise to put that money under one-party control. It’s just too tempting. You need a second set of eyes on that cash. You need oversight and accountability. Otherwise, you’re going to wake up two years from now and find out that a Democratic president, a Democratic Senate and a Democratic House have been funneling a ton of that money to their friends and allies. It’ll be a big scandal — but it will be too late. The money will be gone. Divided government is the best precaution you can have.”

Clearly, he’s speaking from experience.  Really, now, the Republican Party has had its fun.  It’s time to let the other kids play.