Over the last couple months I’ve warned that one main reason banks aren’t lending, and are cutting off credit lines to businesses and individuals, is because they are hoarding money in order to buy competitors. In the Chicago factory sit in, the key moment which caused Republic Windows to shut down was when Bank of America cut off their line of credit, which they did just before they approved a $50 billion takeover of Merrill Lynch.
Bank of America has bought out LaSalle Bank and Countrywide, and bank shareholders just approved a $50 billion buyout of Merrill Lynch. B of A has recently settled the largest suit against Countrywide.
Meanwhile, according to a source familiar with the nature of the bank’s finances, Bank of America has issued $9 billion of secured debt insured by the FDIC. Yet, as with almost all banks, it has been tightening its credit to businesses and consumers.
A lot of banks still have plenty of money. Bank of America has plenty of money. The amount of money required to keep Republic Windows open is trivial to them—$10 million, perhaps.
But right now, they as with other banks, are keeping their powder dry. Money loaned out can’t be used to buy up competitors at cents on the dollar.
If the Feds are serious about getting banks to lend again they have to make it clear that failed banks will no longer be sold to their competitors at fire sale prices but will instead be put in receivership and held for years before any sale is considered. This needs to be explicit policy. Until they do, banks will horde cash, looking for their chance at once in a lifetime buying opportunities. All that will happen to the money being given to the banks is that they will use it for more buyouts.
And more businesses like Republic Windows will go under because their lines of credit were withdrawn.
Related posts:
- Bank Bailout: When a Bonus Exceeds Earnings, How is It Not Fraud?
- Oversight Done Right: Judge Rakoff Rejects SEC-BofA Settlement
- Bank of America Screws Taxpayers Coming and Going
- The Next Big Taxpayer Bailout? IMF Could Get Hundreds of Billions for European Banks
- Jim Cramer: “There’s Too Much Democracy in This Country”
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As usual, Ian is out in front of the media, tying together the individual elements that the propaganda press refuses to explore…
This shareholder voted against it. Mostly because I don’t like BofA – they’ve been screwing customers for decades. (At one time they were closing accounts because they couldn’t find the accountholders, some of whom were prominent names.)
I detest BofA-
Breaking: Illinois Gov severs ties to B of A after meeting with Strikers
Gov. Rod Blagojevich said this morning the state of Illinois “will suspend doing any business with Bank of America” until the company restores credit to the shuttered Republic Windows & Doors company on the North Side.
Blagojevich made the announcement after meeting with former workers who have been staging a sit-in on the factory floor since Friday to protest abruptly losing their jobs. The governor said the state has “hundreds of millions of dollars” in dealings with the bank
Tribune
“Dry powder” is killing our economy. At the end of the tech bubble in late 2000, the VC’s sat on tons of money and that started a slowdown of the economy before a lot of the bloodletting began; in fact it probably caused that down market to go a bit farther than the correction for “irrational exhuberance” called for.
It seems to me that at that point, the piles o’ dough went into the hedge funds that caused the current crises by chasing mortgage securities and oil futures. Follow that money now: it can get our economy back on track if, and only if, it is put to work at places like Republic Windows and Doors and the thousands of other small and medium businesses that have been forced into layoffs because of the credit crunch.
Indeed – great post.
Another thing that banks are doing, which I have not seen reported, is that banks are also charging higher interest rates (prime plus 4 or 5!) to their current clients, making sure that they “break covenants” by looking for petty reasons so that they can raise rates (think credit card companies and “default interest rates at 29%), and looking for any reason how they can charge them extra fees, for example, by scheduling unnecessary monthly inventory audits which are set at rates that benefit the banks.
And if you wonder why the supposedly free market doesn’t work here, not only are all banks doing this stuff, they also are not giving out new business credit so companies cannot shop for new loans anywhere at lower rates or without so many fees or conditions. In other words, heavy duty collusion and cartel formation.
If people are wondering why companies are not able to pass on lower prices to their customers due to the fact that they are not paying as much for energy prices – look no further.
This is the indirect costs that we all are paying for the banks making risky investments in bad sub prime mortgages in the first place. Banks are playing a very dangerous game of chicken here all in search of the holy bottom line.
i don’t think that would make our friends at citi very happy. /s
fyi – the hearing on “the role of credit derivatives in the US economy” starts in about 40 minutes. i’ve posted the details (links to webstreams and background) at oxdown.
Giving away hundreds of billions with no oversight. What could possibly go wrong? How could there be any unintended outcomes? Oh, silly me, all this stuff is intended. /s
Go Gov! It’s so refreshing when somebody somewhere does the right thing for the workers.
BTW, love the graphic Ian. Have you used it before? This is the first time I’ve noticed.
Why the snark tag?
Marcy’s post about Chrysler is indirectly on point here as well.
We are all paying the price for the risky investments that banks (and hedge funds) made in the first place without being held accountable for it. The banks that have been allowed to survive have been able to keep their management staff as well.
The overarching question that I have is, with Obama appointing Larry Sumners, what possible chance do we have that the people actually responsible for this mess actually being held accountable. Obama’s people obviously just think that we just should all STFU and let them go about their business.
Goldman Sachs, Chief of Burglary Operations, Henry Paulson is nearly out of money. Congress will be going home this week. Prepare for for the sky to fall.
Such pride that the Republic employees are using the Flint MI Sit down strike method to bring this to the public’s attention. I thought that some of the workers were also being denied pay for work already done plus severance and vacation pay?
With our Henny Penny form of governance, the results are either too little, too late, or too much too soon. Were cooler heads to prevail, we wouldn’t have allowed unfettered domestic spying or under or non-regulated give-mes to collar criminals, while cowering to the Shelbys of the world on bridge loans to incompetently lead Corps like GM. Too bad the 111th Congress is bound to repeat the 110th for do nothingness or do it wrong.
Heh. I imagine money sprouting wings and flying away. Much nicer mental image.
Anybody got a link to Krugman’s address this morning?
Illinois gov suspends operations with BoA.
It’s just another extension of the Iraq War; no oversight on the billions sent over in pallets of shrink wrapped $100 bills given out like candy to the contractors.
I still believe it’s a giant money laundering scheme to give the Bushies golden parachutes on the way out the door.
You KNOW they will be going back to these banks and corporations for jobs. Maybe it was the price of ending the dictatorship or NSPD 51 would have been implemented. (See The Shock Doctrine – Klein)
I knew something smelled when Paulson screamed “The sky is falling” (more terror)and demanded in his 3 page “plan” to Congress, not only no accountability, but no chance of future prosecutions (I still don’t know if he got THAT) if it all disappeared or whatever.
But the gov is demanding proctological exams of the auto industry for a stinkin’ LOAN! Cause it MAY benefit workers.
We are so screwed. I’ll go make my tinfoil hat now.
I am marginally less pessimistic with Obama & Blagojevich speaking out, but we’ve painfully discovered you can’t take a pols word for anything. I doubt that Illinois can sever its banking ties with BofA anytime soon. Gotta wait & see what they actually do.
Shortly after the $750B bailout was approved, I saw it reported that credit card debt for all Americans had reached $900B. I wondered why Congress didn’t skip the other bailout and pay our cumulative credit card debt, instead. After all, consumers represent 70% of all economic activity and paying off that debt surely would stimulate personal spending for every demographic that possesses credit cards.
I then surmised that they didn’t take that step for two reasons:
1) they didn’t want consumers to get the idea that the govt would bail them out (or pay the debts of those who’d never missed a payment and had great credit) and
2) they don’t mind if the big controllers of capital (AIG, Citigroup, etc) are rewarded for mistakes and learn to be dependent on govt, because… why? Oh yeah: because this bailout is just another massive uphill transfer off wealth to the most well off. Same old same old. With the same minimal oversight that caused $9B to be ‘lost’ in Iraq.
Lost. Heh-heh. Right (nudge-nudge-wink-wink).
They can call it a crisis and offer all kinds of convoluted reasons to throw extraordinary sums of our money at it. But it smells like the same old reverse-Robin-Hood game to me. The managers and designers who provduced these circumstances get few or no wrist slaps, then they divert attention from the real culprits to organized labor and steal the assets, earnings, and savings of the middle class and poor.
It smells like the same old wealth transfer that has gone on by different names from the robber baron age thru today.
Cynical? Naw. Just another reality based comment from someone who understands the existing bull market for snake-oil.
Sock Doctrine on steroids.
Blago might be a crook well not much of one by Illinois standards but he has the right idea. Dems should copy him.
[katymine]!!!
Yes, my thoughts exactly – Flint Fisher Body Plant Strikes(heh) Again!!
Lots of banks not making car loans Michigan should award their business to whomever can make the most car loans nationally.
Be nice if folks who don’t hold a BoA credit card start closing their accounts and moving to a locally owned bank or, if eligible, a credit union. A number of those might shake BoA a little. Now that they’ve been called out it’ll be very interesting to see how they react. I had an account with BoA in the early 70s. Screwed me over royally. Switched to a federal credit union and been with them since.
Great minds and all………;-)
Yay for the union, too, for organizing the walkout. This is why unions are so valuable.
GMAC will go under if the banks pick up the slack so just what is Cerberus doing with its cash they got the majority stake in GMAC and Chrysler.
They buy companies in financial distress and turn them around but they are doing nothing right now?
Could they be broke?
Better yet, if the banks don’t want to use the money the public gave them to keep the economy moving, but instead want to hoard it for their own fun and profit, I wonder how they’d feel about the government using the rest of the money as a lender of last resort to small businesses that need it to stay in business, thereby bypassing the banks. This is an emergency situation and all the banks want to do is profiteer. Fine, let them compete with the government; see who wins that battle!
Just got email from True Majority. They’ve got a petition going for BofA and congress here
http://act.truemajorityaction……n_KEY=1556
Somewhere in my psyche is the notion that B of A is the bank of the rich. Don’t remember why anymore. Also, weren’t they called out for being anti gay some years ago?
The bank debacle is enabled by the Dems in Congress not explaining to all the public that deals with the devil (corporate banking) could not possibly turn out well.
Nations Bank (Charlotte, NC) bought BofA in 1998 and took BofA name. I heard a bizarre story of Christianists at Nations (starting a meeting of high level executive by asking God to help the business or something like that), so I suspect they have all kinds of nasty stuff going on wrt gays.
Done. Thanks for the link.
My partner uses BoA for his business– they have twice recently cut his business line of credit in half without notice, without cause (accounts in good order).
He has so far been able to rectify the situations by spending most of 2 days arguing with them. But it’s clear they are doing everything they can to screw people over. And I don’t think it’s peculiar to BoA. I bet many banks are doing the same shit.
40 years ago today John Lennon was gunned down by an attention seeking nutjob.
Outmoded Marxism
How dare you presume to stand in the way of where capital wants to put itself! Of course capital doesn’t want to waste its time anymore with low ROI nonsense like lending to, much less owning, the means of production. How very 19th Century. The margins are anemic, and to get even that little profit, you actually have to waste the time and effort it takes to understand something real-world like production and its means.
The real action is in activity as far removed from reality as possible. Sure, pointless mergers and acquisitions are much better than owning the means of production, but markets even further removed from reality, where there are fewer natural barriers to capital’s tendency to organize itself in pyramids, have generally given better ROI lately. Perhaps there is a touch of concern right now about these freer markets in things like CDSs, so perhaps there is something to the idea that capital would settle for the sloppy seconds of acquiring a little bank or two. But clearly this is a mere hiccup in the progress of capital as it makes its way through our society. It won’t rest, and it won’t be stopped, until it has gone through and destroyed everything merely real in our society.
Shock Doctrine is part of bankimg poiicy moreso now than when Pierpont Morgan was taking peoples homes and farms during the depression.
This is more Shock Doctrine.
Yep – see what I posted under #6, above.
Credit Unions = greatest thing since sliced bread wrt finances.
Worked for one during two years of grad school and never met a nicer bunch of staff and customers. Was fortunate to be employed throughout work career in a capacity that allowed membership in an excellent one.
28 years.
It just feels like 40.
Shouldn’t that be people who do hold a BofA card?
Good idea. How can we use the internet to create such a movement?
I’ve signed the petition but I don’t think it goes far enough. I actually have an account with BOA. Most of my neighbors do, also due to its proximity to our neighborhood. Shouldn’t we be threatening to move our accounts to banks that are using the bailout money as intended?
Really good point, I need to do an article on the cost of credit being why lower costs aren’t getting passed on.
First time on that one. :) When I saw it I knew it was perfect for, well, most of my posts on the bailout. ;)
very nice. :)
-Back late-
but, oh yes- (@ 06) I think they’re all about circling the wagons and protecting their pot of gold- i.e. their massive executive compensation, etc.
I’d love more detail (Ian @ 46) about this.
Yes of course: banks should be FORCED to lend money to failing companies who likely won’t be able to pay them back. Just as they were FORCED to lend to individuals seeking mortgages they couldn’t afford. It worked, then and it’ll work now!
True story: my sister, a SFO lib for years, and a former bank credit manager, told me recently that 15 years ago she and her husband were seeking a mortgage for a new house. The bank (not where she worked) asked them to LOWER the stated income on their application. She thought it an odd request, and now she knows what was going on: the bank was trying to meet a quota of Fannie Mae-compliant loans. A quota set by the feds.
It’s a dirty little secret, but the Dems have their pawpritns all over this crisis.