How ironic it is that America’s largest banks, in their ever-increasing quest for growth at any cost, drifted horribly away from their skill-sets and knowledge-base and into exotic financial instruments few people sold and even less understood. Now we continue to bailout these “too-big-to-fail” institutions while America’s small businesses eagerly wait to see if anyone in Washington will even remember them and offer a hand-up. Well…you’ve been waiting a while, haven’t you?
I find it amazing that Congress (the House of Representatives, in this case) can act so quickly (and be so incredulous) to enact legislation (unconstitutional, by the way) a few weeks back in a matter of mere days to tax the $165 million in AIG bonuses (less than 1% of what we’ve invested in AIG to “bail-them-out”), yet most of President Obama’s much-vaulted small business initiatives speech in mid-March was just a rehashing of some of the few provisions in the ARRA (American Recovery and Reinvestment Act) that directly affect small businesses. The ARRA, sadly, is long on social engineering and short on much that’s immediately stimulative. How come our elected officials can’t show the same speed and deftness in passing meaningful legislation that might actually have a substantial impact on the growth of small businesses in America? Perhaps it’s time you ask your local Representative this question.
If you’re like me (and most of our readers here are either business owners or advisors to business owners), then you’ll admit to yourself that somewhere, deep down, you’re angry at these Big Banks that got TARP funds. You’re irritated at the Wall Streeters who created this House of Cards. And you’re frustrated that no one is knocking on your door to bailout your business. The Big Banks, AIG, and the auto industry should have had to choose between bankruptcies or receivership, not bailouts. We don’t need the “rule of politicians” (screaming about the few people that made profits at AIG and actually give us a slim chance to get out of it, maybe nearly whole); we need and needed the “rule of law”: chapter 11 or chapter 7 of U.S. bankruptcy law. The primary reason the Big Banks didn’t declare is because Wall Street (where Geithner and Paulson once worked) would have been left holding the bag — they wouldn’t have done as well as under the current bailout program. Sad, but irrefutable.
It may be public schizophrenia…people wanting programs they don’t want to pay for…but people like us KNOW this is faulty logic, completely untenable in the Real World. Never-ending budget deficits cannot exist forever for small business owners. We can’t raise the cost of our services indiscriminately. And we certainly can’t print more money. While most people in America are belt-tightening, Congress is giving most departments and agencies double-digit percentage budget increases. Amazing!
Ted Preston says:
So, the Big Banks got what they deserved – greed always seems to be rewarded sooner or later. My question is this: what structure do you see emerging? The Big Banks become government-controlled entities, at least for a while, and during that period they are forced to peddle federally-backed programs (like home loans for anyone who can fog a mirror as long as they are a minority, even if they have no chance of ever making a payment – ”deja vu all over again”, I guess) – so where do we (I am a real estate developer in the private sector – if that still exists) find debt and equity for our projects? Will the still-independent middle market sources fill the void? What is your prognosis for how the landscape will look and what changes will occur to the capital markets as we emerge from this period?
Joe Welnack says:
Ted makes a good point. One problem that I have had with the original TARP is that initially Mr. Paulson was not even going to give Congress an accounting of where the $$ was going. Big banks imho are NOT too big to fail, simply put they made themselves too complicated to fail.
As to the AIG “bonus” the amount of money was a distraction to take “heat” away from the real rouges in this disaster; underwriters. A excellent book “The End of Wall Street” (as we knew it) gives the reader a true understanding of the exotic financial instruments that AIG was underwriting along with CDO’s and other non-plain vanilla banking products.
Ted, the Big Banks thusfar HAVE NOT gotten what they deserve. I believe that in the cases of underwiting on the CDO’s a RICO case can be made against some of the white shoe firms on Wall Street.
Jeremy says:
There is obviously a lot to know about this. I think you made some good points and I’ll be back to read more.