Tales from Bailout Nation XXIII

The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.

The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.

The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.

Looks like we’ll finally be able to find out who was naughty and who was nice and who really did and didn’t need bailout money when this whole thing turned ugly in the fall of 2008. Recall back in October of 2008, 9 of the largest banking institutions in the nation were summoned to a closed-door with then-Treasury Secretary Henry Paulson and Fed chief Ben Bernanke and were told to sign on the dotted line accepting bailout money whether they needed it or not.

And with respect to the Fed not wanting to stigmatize borrowers? Umm…. Isn’t this the sort of information you would want to make public in an effort to prevent it from happening again? As an investor, would you not want to know who were the bad actors and shouldn’t those bad actors be punished as a result in an open and transparent free market.

Well, of course, but that’s not how things work in Bailout Nation where bad behavior both on Wall St. and Main St. (see: Homeowner’s assistance programs) are rewarded and good behavior is punished in the form of higher fees and taxes to fund Bailout Nation.

In what is probably a first, we are in concurrence with Socialist Bernie Sanders of Vermont who called the decision a “major victory” for U.S. taxpayers.

We’ll savor this victory while we can as the governing trend of our “deem and pass” government is away from transparency and accountability and where our lives and everyday decisions are thought to be too important to be left to our own devices.

The Birth of Bailout Nation

This is something we have strongly suspected since last October. And while hundreds of billions in tax dollars were shuttled to banking institutions and to the lending industry before this, the mid-October '08 meeting between Paulson, Beranke and the Big Nine established the psychology and M.O. for Bailout Nation.

It has been widely reported that Treasury Secretary Hank Paulson and Fed chief Ben Bernanke summoned the CEOs of America's nine largest financial institutions to a meeting on October 13, 2008, at which they were told that their banks would be required to accept TARP money and give the federal government an ownership interest in their institutions, whether they wanted to do so or not. We have it on good authority that some of the bankers, at least, were told that they would not be allowed to leave the room until they signed documents that were presented to them at that meeting.

Powerline has the "offer they couldn't refuse" and a very interesting email, here.

H/T: Instapundit

And in other news today...

Treasury Secretary Henry Paulson doesn't hold press conference.... stocks rebound.

Do you know why "capitalism" didn't fail...?

Two words: Wells Fargo

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry Paulson said they must sign it before they left.

The chairman of JPMorgan Chase, Jamie Dimon, was receptive, saying he thought the deal looked pretty good once he ran the numbers through his head. The chairman of Wells Fargo, Richard Kovacevich, protested strongly that, unlike his New York rivals, his bank was not in trouble because of investments in exotic mortgages and did not need a bailout, people briefed on the meeting said.

That was the setting late yesterday afternoon at the Treasury Department where, like a scene from a gangster flick, SecTres, Henry Paulson made the CEOs of the nine largest banking institutions an offer they couldn’t refuse by “offering” to buy stock in the banks.

And did you get that? Wells Fargo didn’t even need or want the bailout but wound up capitulating in the end under the pressure of Paulson and the other 8 banks.

At the wave of his hand, Paulson commits the government to another $2.25 trillion in the form of capital infusion, insuring senior debt issued by the banks and insuring deposits in non-interest bearing accounts. Of course, this is triple the size of the original $700 billion bailout package upon which there was actually a vote.

Originally, the buzz surrounding this latest bailout was that it was going to be voluntary – banks that did not wish to participate would not have to. Uh, yeah. Obviously, there was no way in hell, Kovacevich was going to get out of that meeting alive without signing on. You just can’t have a solvent institution like Wells Fargo thumbing their nose at the government and the other Big Boys and still maintain the façade of an all-emcompassing financial crisis. Fall in line, boys…

A couple of weeks back, we were talking to our banker…. from Wells Fargo. We asked her about this whole mess and she told us that during the housing boom she got frustrated when she saw competing banks snatch up a lot of the mortgage lending business and yes, she was aware that Wells never offered the greatest rates of return on a lot of their banking and investment plans but that fiscal responsibility was always one of the institutions top priorities.

We don’t want to do any cheerleading but here is a perfect case of a financial institution operating in the free market, providing a service to its customers in the form of investment opportunities and capital for home and small business loans all the while turning a profit for its shareholders. All of that was accomplished in a responsible and sober manner and as a result, they are on solid footing.

Not that that matters anymore...

A Bailout? Perhaps. Just not this Bailout.

A few random thoughts on this bailout business

- We continue to have a very hard time putting all that power in the hands of one virtually unaccountable person. Henry Paulson, the Treasury Secretary, may be a very capable man but how is he as the single-point-of-contact for the entire financial sector of this nation’s economy a good thing?

- We were talking with B-Daddy on the phone and were commenting on how the latest polling shows the American public trusting Suit to better handle the economy but also not in favor of government intervention into the free market. We remarked this as being demonstrable of the George Will quote, “Americans talk like Jefferson but govern like…” and before we could get “Hamilton” out of our mouth, B-Daddy yelled, “Mussolini…! I wish ‘we’ governed like ‘Hamilton’”. But I think he got the point.

- And we’re pretty tired of all this talk of “executive compensation” and “punishing the evil-doers in the board room” and blah, blah, blah… Give it a rest. Do we want the responsible parties punished? Yes. But the incessant populist-driven yammering to string up the suits is pretty far down on our list of priorities when it comes to getting this whole mess straightened out. Besides, it just provides cover for those who should’ve been minding the hen house in the first place and who are currently the very same people crafting the legislation that will make everything all nice and pretty again. Foxes!

- “We have to do something”. Do we? Its been nearly a week since this meltdown occurred and Congress has not passed any legislation and there have been no runs on the banks. If we can wait this long to “do something” that must be done “urgently” or “immediately” can we wait a little longer, keeping the wolves at bay, to “do something that makes sense?”

- This is a fantastic opportunity for McCain to drive the final stake between he and President Bush. By rejecting this bailout he distances himself from Bush, he burnishes his Maverick credentials and makes Suit look more and more like the Bush III he really is.