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$30B Small Bank ‘Bailout’ Will Be Wasted

An astonishing article from, of all places, the Associated Press:

President Barack Obama delivers remarks following his meeting with small business owners at the Tastee Sub Shop in Edison, N.J.

SPIN METER: Program risks $30B to save weak banks

By DANIEL WAGNER (AP) – August 1, 2010

WASHINGTON — People are fed up with bank bailouts that risk taxpayer billions. The government’s apparent solution: call them something else.

Congress is at work on a new program that would send $30 billion to struggling community banks, in a process similar to the huge federal bailouts of big banks during the financial crisis. This time, money is more likely to disappear as a result of bank failures or fraud.

Two weeks ago, President Barack Obama declared an end to taxpayer bailouts when he signed a sweeping overhaul of financial rules. In his weekly radio and Internet address on Saturday, he described the new bailout program as "a common-sense" plan that would give badly needed lending help to small-business owners to expand and hire.

At its core, the program is another bank rescue. Some lenders need the bailouts to survive. Others could take the bailouts and crumble anyway. That’s what happens when banks run out of capital — the money they must keep in case of unexpected losses. Banks with too little capital can be shuttered to protect the taxpayer-insured deposits they hold.

Or, under this proposal, many could get bailouts. The new money would be available to banks that are short on cash. It’s supposedly reserved for banks deemed "viable." But regulators won’t consider whether banks are viable now. They’ll envision how strong a bank would be after receiving a fresh infusion cash from taxpayers and private investors. If the bank would become viable because of the bailout, the government can make it happen.

Which of course is practically what we call in logic, a tautology. A bank will be considered ‘viable’ because we have given it the money to be ‘viable.’

"This is a below-the-radar bailout for community banks," said Mark Williams, formerly a bank examiner with the Federal Reserve. "What we lack here is oversight and true accountability." …

Small banks are struggling partly because the economy is so weak. For banks in the hardest-hit areas, it can be nearly impossible to recover once too many loans sour.

Yet the bill would require that banks be protected against "discrimination based on geography." It says the money must be available to lenders in areas with high unemployment.

Such banks are "only as strong as the loans they make in their communities," said Williams, now a finance professor at Boston University.

In other words, this bailout will only go to banks that will be sure to keep making bad loans to people who cannot afford to pay them back. So, like almost all of Mr. Obama’s initiatives, it is just another form of wealth redistribution.

Also, the government knows far less about these lenders than about Wall Street megabanks. Many community banks are overseen by state regulators struggling under budget cuts and limited expertise. Many are ill-equipped to monitor banks during a crisis, Williams said

The administration says the bill is not a bailout, but a way to spur lending to small businesses and bolster the shaky economic recovery. The idea is that businesses want bank loans, but banks don’t have enough money to lend. And they say the program has to include riskier banks in order to work…

Some banks will have an easier time granting loans after receiving bailouts. But Federal Reserve Chairman Ben Bernanke and others have questioned whether the problem is lack of capital, or if there simply aren’t enough creditworthy borrowers.

The administration’s haziness about whom the program benefits has fueled comparisons to the $700 billion bailout known as the Troubled Asset Relief Program, or TARP. A few important differences make this bailout riskier.

The bailouts that started in 2008 were subject to oversight by a special watchdog. Neil Barofsky, who heads that inspector general’s office, recently saved taxpayers $553 million by stopping the Treasury from mailing a check to a failing bank accused of fraud.

Under the new law, it’s not clear the money would have been saved. The new bailouts have the same investment structure, size limits and approval process as the old ones. Yet they aren’t subject to Barofsky’s oversight. His office has staff and procedures in place to monitor banks for bailout fraud — resources that cost taxpayers millions.

The new law creates an office that duplicates those efforts, and Barofsky’s supporters say that’s an effort to silence one of Treasury’s loudest critics

Isn’t odd how Congress suddenly has no interest in ‘oversight’ when they are doling out taxpayer money to their friends?

The measure has been the subject of a months-long lobbying push by small bankers. Disclosures show that community bank bailouts have been the most common topic of Treasury’s bailout meetings with lobbyists over the past 10 months.

The trade groups insist that smaller banks are not necessarily riskier because they weren’t behind the speculation that nearly toppled Wall Street.

History suggests that’s not true. Most of the 268 banks that have failed since 2008 were community banks.

The proposal has drawn little notice from a public weary of bailouts for Wall Street, auto makers, insurers and homebuyers.

Wilson said that shows how well it’s been sold.

"If you put small business in the name, people will like it, and if you put banks in the name no one will like it — but the money is going to banks, not small businesses," he said.

What an amazing article for the Associated Press to publish! They are speaking against The Revolution here. They are actually questioning authority.

Of course, the AP put it out on a sleepy summer weekend, when few people will be bothering to read the latest financial news. But still, you have to give them credit for some actual reportage – for once.

Still, who can doubt that this will eventually get rammed through Congress? After all, we must ‘save’ Maxine Water’s hubby and the Democrat foot soldiers at Chicago’s Shore Bank with more taxpayer money.

This article was posted by Steve on Monday, August 2nd, 2010. Comments are currently closed.

4 Responses to “$30B Small Bank ‘Bailout’ Will Be Wasted”

  1. Dokemion says:

    What a waste! Do they mind spraying 1% of it to my business? Just kidding. Really it’s such a waste.

    bank rates

  2. Liberals Demise says:

    Why don’t we call it for what it is………..”The dingleBarry Abyss”
    ques: When is enough……enuff?
    ans: Never!!

  3. Rusty Shackleford says:

    “I Do Think At A Certain Point You’ve Made Enough Money”

    BHO April 29, 2010

  4. confucius says:

    To summarize,
    –Big banks are “too big to fail” and get regulated to the point of nationalization.
    –Small banks are “too important to fail” and get no regulation at all.

    To summarize the summary,

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