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Jonathan Tobin: Defending the Right to a Jewish State

Heather Hale: Compliment your kids without giving them big heads

Megan Shauri: 10 ways you are ruining your own happiness

Carolyn Bigda: 8 Best Dividend Stocks for 2015

Kiplinger's Personal Finance editors: 7 Things You Didn't Know About Paying Off Student Loans

Samantha Olson: The Crucial Mistake 55% Of Parents Are Making At Their Baby's Bedtime

Densie Well, Ph.D., R.D. Open your eyes to yellow vegetables

The Kosher Gourmet by Megan Gordon With its colorful cache of purples and oranges and reds, COLLARD GREEN SLAW is a marvelous mood booster --- not to mention just downright delish
April 18, 2014

Rabbi Yonason Goldson: Clarifying one of the greatest philosophical conundrums in theology

Caroline B. Glick: The disappearance of US will

Megan Wallgren: 10 things I've learned from my teenagers

Lizette Borreli: Green Tea Boosts Brain Power, May Help Treat Dementia

John Ericson: Trying hard to be 'positive' but never succeeding? Blame Your Brain

The Kosher Gourmet by Julie Rothman Almondy, flourless torta del re (Italian king's cake), has royal roots, is simple to make, . . . but devour it because it's simply delicious

April 14, 2014

Rabbi Dr Naftali Brawer: Passover frees us from the tyranny of time

Greg Crosby: Passing Over Religion

Eric Schulzke: First degree: How America really recovered from a murder epidemic

Georgia Lee: When love is not enough: Teaching your kids about the realities of adult relationships

Cameron Huddleston: Freebies for Your Lawn and Garden

Gordon Pape: How you can tell if your financial adviser is setting you up for potential ruin

Dana Dovey: Up to 500,000 people die each year from hepatitis C-related liver disease. New Treatment Has Over 90% Success Rate

Justin Caba: Eating Watermelon Can Help Control High Blood Pressure

The Kosher Gourmet by Joshua E. London and Lou Marmon Don't dare pass over these Pesach picks for Manischewitz!

April 11, 2014

Rabbi Hillel Goldberg: Silence is much more than golden

Caroline B. Glick: Forgetting freedom at Passover

Susan Swann: How to value a child for who he is, not just what he does

Cameron Huddleston: 7 Financial Tasks You Should Tackle Right Now

Sandra Block and Lisa Gerstner: How to Profit From Your Passion

Susan Scutti: A Simple Blood Test Might Soon Diagnose Cancer

Chris Weller: Have A Slow Metabolism? Let Science Speed It Up For You

The Kosher Gourmet by Diane Rossen Worthington Whitefish Terrine: A French take on gefilte fish

April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review January 20, 2009 / 24 Teves 5769

The Goodfellas at the Fed

By Robert Tracinski


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http://www.JewishWorldReview.com | The basic pattern of the Stimulus Depression continues: the more the government tries to stimulate it, the more depressed the economy gets.

According to the latest report in the New York Times, after hundreds of billions of dollars in spending, the stimulus is not working. The banks who were supposed to be saved by the first round of bailouts are actually in worse shape and need more federal cash.

The Times notes that the source of the problem is that "Private investors are scarce. For all but a small group of healthy banks, bankers and analysts say, the government may be the only investor left."

But the obvious question is: why are private investors scarce? Maybe it has something to do with the terms of the "stimulus" aimed at them. The Times story contains only one hint at this:

Mr. Obama's economic team is planning a broad overhaul of the program to impose more accountability and more restrictions on executives at companies that receive government money.

"More accountability" means more government management of the banks; more restrictions means more measures designed to reduce the profitability of the banking industry and drive out the best talent.

For an example of what all of this "accountability" means, consider the Wall Street Journal's overview of the government's treatment of the healthiest of the big nationwide banks, Bank of America.

Bank of America CEO Ken Lewis earned kudos last year for stepping into the breach when the mortgage market and Wall Street cratered. BofA's purchase of Countrywide Financial and its September agreement to buy Merrill Lynch offered a welcome dose of optimism and private capital amid the panic.

In December, Mr. Lewis realized that he had been too optimistic…. After BofA shareholders approved the Merrill purchase on December 5, Mr. Lewis saw Merrill's assets plunge in value and began to explore a way out. At least he wanted a better price….

Mr. Lewis's effort to protect his common shareholders was vetoed by his most important shareholder, the feds. In October the US Treasury had insisted on investing $15 billion in his bank. Come December, Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke told him that Merrill had to be saved, and that BofA had to be the savior….

In other words, the feds believe that the way to calm financial markets is to force the nation's largest, and a heretofore healthy, bank to swallow toxic assets it didn't want.

But here's the really awful part: the Treasury's forced investments in Bank of America are held in the form of preferred shares paying an 8% dividend. Yet the bailout agreement forced on the bank "limits quarterly common stock dividends to a penny a share." Oh yes, and Bank of America "will also have to accept new executive compensation limits. And the bank will need to submit for government approval a plan to modify troubled mortgages." The Journal's commentary concludes: "Mr. Lewis doesn't seem thrilled that the government has a larger piece of his business. When asked yesterday when the bank might escape federal ownership, he replied, 'I wish I knew,' and then added, 'clearly as soon as possible.'"

Similarly, Bloomberg's David Pauly describes the incoming administration's attempt to suppress the stock dividends paid by banks, a measure which effectively eliminates the "last reason to own bank shares."

Banks have traditionally paid hefty dividends. In the years before the onset of the subprime mortgage crisis, payouts by Bank of America Corp., for instance, yielded about 3 percent to 4 percent of the company's stock price and grew steadily.

Now President-elect Barack Obama plans to take away even that attraction, Lawrence Summers, who will head the new administration's National Economic Council, informed Congress this week.

Obama…will order the Treasury Department to limit dividends paid by commercial banks and investment banks that receive "exceptional assistance" from the government to "de minimis amounts."

While investors have known that current yields were ballooned by falling share prices and that massive bank losses made some payouts unsustainable, many may have bet that relatively stronger banks would still maintain nice returns….

Now, what dividends, if any, banks can pay may depend on how extraordinary "exceptional" may be interpreted and how trifling "de minimis" may turn out to be….

It seems likely that dividends of all the major bank recipients of Washington rescue money will be restricted.

Again, while private investors may be out of luck, the government will still get its dividend: "Obama's Treasury may want to assure the banks have enough money to pay the dividends they owe US taxpayers. The preferred shares in financial institutions that the government bought in the rescue effort pay 5 percent dividends for the first five years, 9 percent after that."

All of this reminds me of a minor subplot from the 1990 film Goodfellas. The movie is interesting as a relatively un-glamorized portrait of the life of mobsters—though that won't necessarily make for a fun evening's viewing. The subplot involves the hapless owner of an Italian restaurant that becomes a favorite hangout for the mobsters. When they become a bit too rowdy, the owner goes to the godfather and asks him, in the politest possible way, if he can tell his men to keep it down and stop scaring off the regular customers. The godfather immediately demands a part-ownership in the restaurant—and it is clear that this is an offer the owner can't refuse.

What follows is a series of scenes in which the mobsters feel free to show up at the restaurant and steal cases of beer from its coolers, for example, or walk out after a large meal without paying the bill. After all, they're business partners, aren't they? Eventually, having bled the restaurant dry through this kind of petty theft, they set fire to the place in order to collect the insurance money.

That's how the banks must be feeling right now about their own unwanted "business partner," the federal government. Having been coerced into accepting bailout money from the Treasury, they now find that their new partner is draining away every last bit of wealth that used to belong to the bank's real owners, its private shareholders.

No wonder that the LA Times reports that "An index of 24 major bank stocks has fallen every month since September and dived 29% just since year-end, to a 13-year low Friday."

Much more of this mob-style "stimulus," and private shareholders will have been driven completely out of the financial industry—which will then be taken over by the goodfellas at the Treasury and the Federal Reserve.

Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.


JWR contributor Robert Tracinski writes daily commentary at TIADaily.com. He is the editor of The Intellectual Activist and TIADaily.com. Comment by clicking here.

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