Friday, July 10, 2009

2 Views, 1 Magazine -- on the Bailout

I was catching up on some magazines tonight and was really surprised to see 2 diametrically opposed views on the banks and the bailout. Fittingly, one story ran in the front of the book and the other at the end.

The first article is an opinion piece by Allen Sloan who -- I think rightly so -- points out that "...before you accept the Street's version of events, recall that you didn't hear complaints about "socialism" when the government bailed out creditors of Bear Stearns and AIG, and let Goldman Sachs and Morgan Stanley become bank companies so that they could borrow hugely -- and cheaply -- from the Fed." Sloan does add that perhaps there's more to the banks desire to pay back the TARP funds may not be just to get out of the political spotlight, but also to buy back the warrants that the Treasury got for lending the funds before they become worth too much. Basically they took the money when they needed it and want to give it back before the value of the warrants rise too high and the American people get their fair return. Nice work guys.

But there is another side of the story that starts 64 pages later that tells the Banks' side of the story. Basically it's the banks crying about how they were vilified by the press and the public as they were taken through the bailout process and the feeling that they were mistreated by the government -- both in terms of changing of the deal as the process continued and politicians demonizing the banks in public sessions to score political points.

Through all the complaining there was a really good paragraph towards the end:

So has TARP done its job? "It was one of the largest government appropriations in history," says Thomas Chen, CEO of the investment bank Piper Jaffray. "And a mere seven months later we're letting capital be returned on the basis that the problem is fixed. So you have to ask: (1) Has it all been fixed?, or (2) Was it necessary in the first place?" Chen believes the program had a short-term calming effect on the economy -- more than a financial effect. Says Thomas Nides, Morgan Stanley's chief administrative officer: "The original concept was to accomplish one thing: to stop us from going off the cliff, to send a clear message that the government was not going to let the system collapse. For that I give them an A+."

I think Chen and Nides have this about right. For all the flaws of TARP, I think it did what it needed to do -- it averted an all out crisis.

One final thought on the 2 articles. Which view is more right? Are the banks having a bout of selective memory? I think so. Mostly because of the adage "Follow the money". Paulson, Geithner and Obama aren't going to get rich off TARP. But the bankers have not only kept their jobs, but it seems as if they may prosper greatly as the government takes on all the responsibility for their mistakes in the form of toxic assets, and through access of cheap money, leaving the bankers to make boatloads of money. I think the bankers doth protest too much.

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