The President, FDIC and FCIC Battle the Capitalist

January 13, 2010

The Facts

The war on executive bonuses continues on in Washington, as does a way to recoup the billions lost and/or expected to be lost on bailing out Wall Street. President Obama wants to impose a fee on financial firms to recover those billions. And the latest effort to limit executive pay comes from the Federal Depositors Insurance Corporation. The latter’s idea is to penalize banks for risky compensation practices. But the “enemy” has long ago circled the wagons and the bloody battle rages on.

The publicly acknowledged expected losses from TARP is $120 billion. I say “publicly acknowledged” because we continue to hear much higher figures. Some even go as high as in the trillions. So the question is why should the taxpayers eat those losses while the banks reap tens of billions in profits?

FDIC’s Shelia Bair’s idea to fix the excesses on Wall Street is flakey to say the least, but a fix is an absolute must. The biggest flaw in her proposal is identifying the definition of “high-risk”. Certainly we can look back and select dozens of examples, but looking forward? All we could do is list historic high-risk. Many times we’ve heard bankers say had they known the consequences of their actions, they’d have done things different. Many question exactly what that means. They liken it to the crook who blames the problem on simply being caught.

Earlier this morning David Faber of CNBC spoke to Kyle Bass of Hayman Capital Partners. Bass is in Washington to testify in front of the newly formed Financial Crisis Inquiry Commission (FCIC). Bass made several very interesting comments which you can hear by watching the video below. However, the one most relevant here was when he said “what happened in the crisis was people were able to take inordinate amounts of risk without posting collateral or capital against those risk — that still holds true today”. In other words, the bankers positioned themselves to reap all the potential profits and shove all the losses on others — privatized profits and socialized losses. They have no skin in the game.

Although not members of Congress, the FCIC is working under typical Washington rules — they won’t file their report to the President until December 15^th of this year. Like all similar efforts put forth by our government, by setting a far-out date, it will give the “enemy” time to study the Commissions progress and plan their strategy of how to circumvent any recommendations the Commission comes up with.

My View

Today’s capitalist: “The government is responsible for everything except our profits and pay packages”.

That said, lets fix the problem thusly:

• The banks shall immediately pay back every cent of the TARP funds with a reasonable interest. If they can’t, then they shall cease operations immediately, sell all assets and forfeit all bonuses received over the past five years, with the federal government being first creditor in line to get paid.
• The banks shall immediately return the estimated $3 trillion they’ve borrowed from the Treasury and Feds. If unable to do so, then the same rules for TARP apply.
• All guarantees the FDIC has underwritten to creditors of the banks shall be immediately terminated.
• Congress must write a one-paragraph bill that simply says the government will never ever be allowed to bailout any corporation or loan money to any bank in the future for any reason. Every member of Congress — Democrats, Independents and Republicans — shall sign the bill or immediately resign from office.
• The President of the United States shall sign the bill into law within 24 hours.
• Within a week of signing the new law it shall be amended to the constitution (— as if that stipulation didn’t already exist).

With the aforementioned in place, the bankers are now free and clear to run their businesses any way they see fit, and reward themselves with as many hundreds of billions of dollars in bonuses they want. And not one person — not the government nor the taxpayer — would have any right whatsoever to say anything.

Now that’s real capitalism!

Problem solved!