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Big Ed Was Right: Big Government Favors Big Banks

For more than a year, MSNBC television host Ed Schultz has hammered away at Washington for favoring large financial institutions over small community banks.

The treatise of his rants is that the community banks cannot borrow at the same low rates as the Big Banks. One of the results is lack of equity the big guys receive the little guys don’t from the Federal Reserve. And that translates into fewer consumer loans on the streets, of, let’s say, New Prague, Minn.

Poor Ed doesn’t have much of a following meaning few listen. But give the big fellow credit. He was right.

On Friday, the feds seized five more mostly community banks, bringing the takeover to 101 and on a pace to surpass last year’s 140.

The Federal Deposit Insurance Corp. which is in red ink itself, said the banks were from Georgia, Florida, South Carolina, Kansas and the one in New Prague.

Most of the bank failures were caused by sour loans to commercial properties — a smoke signal that will reach up to the big banks sooner and not later.

The failure of commercial property investments could be worse than the housing market collapse, especially if they are bundled as asset packages and sold to outside investors in the financial food chain.

The number of banks on the FDIC’s “problem” list increased from 702 to 775 in the first quarter this year even though the industry reflected its best first quarter earnings in two years.

The FDIC at the end of the first quarter was $20 billion in debt even as Congress increased assessments of banks paying into the insurance fund. The agency guarantees individual investments up to $250,000.

Now, compare that to the major financial institutions on Wall Street that were rescued by Congress in the TARP bailout and recovered because of $700 billion infusion of equity.

Before Congress later stepped in and “capped” excessive executive compensation of bailed out companies still on the dole, 17 were named publicly by so-called pay czar Kenneth Feinberg.

That’s it. They were placed in a sort of “Hall of Shame.”
Feinberg said his public ridicule of the 17 banks was punishment enough.

Forget the fact he could have gone after the $1.6 billion in lavish compensation. He wanted to protect the banks from possible lawsuits from shareholders trying to recapture the executives’ money had he declared it in language “not in the public interest.”

“I’m not suggesting we should blink, or turn the other cheek,” Feinberg said in an interview with The Associated Press. “These 17 companies were singled out for obviously bad behavior. The question is, at what point are you piling on and going beyond what is warranted?”

While most of the 419 companies receiving TARP funds have repaid taxpayers, two that didn’t on the list of 17 were AIG and Cit groups. Taxpayers will eat the billions in losses they incurred.

Ed Schultz is right. The banking system is ruled by a double standard.

One for the fat cats. They are great at producing profits on paper. Even under the new banking reform law,  some will be deemed too large to fail no matter what you hear out of Washington claptrap politicians.
Another for the litter. Community banks are the engines driving our economy that actually produce things.

———————-

EPILOGUE

Here’s a thought. Rather than publishing a list of big bank “Hall of Shame” members of lavish executive compensation, why not go public with a list of results of how big banks fared under  economic “stress tests?”

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