The Financial Services Committee Weekly Soap Opera

The House Financial Services Committee is giving The Price is Right a run for its money when it comes to daytime teevee. First, we had high intrigue as Harry Markopolos, pseudo-spy extraordinaire, described how he dodged the Russian Mafia and suffered grievous SEC incompetence in his attempts to bring down the Madoff Ponzi scheme. Last week, the committee held TARP accountability hearings in which the CEOs of several large financial institutions testified about their use of TARP proceeds. Minyanville posted an infotainment piece, Economic Snapshot: The Banking Hearing's Best Lines, in which they extracted some of the more choice quotes from the hearing. The Congressmen's ire was evident from the scorching rebukes delivered. Clearly, the Representatives were in harmony with the public's outrage over the gross and consistent mismanagement that lead us to this point--or at least that was the way it appeared. Personally, I like to know how everyone's bread gets buttered, so I had myself a good look.

CEOs in Attendance
Lloyd Blankfein, CEO of Goldman Sachs
James Dimon, CEO of JP Morgan Chase
Robert Kelly, CEO of Bank of New York Mellon
Ken Lewis, CEO of Bank of America
Ronald Logue, CEO of State Street Corporation
John Mack, CEO of Morgan Stanley
Vikram Pandit, CEO of Citigroup
John Stumpf, CEO of Wells Fargo

1.Rep. Michael Capuano (D-MA): "America doesn't trust you any more... I don't have one single penny in any of your banks."

Although Mr. Capuano may not have his money in any of the aforementioned institutions, unfortunately the converse does not hold:

Capuano Campaign Donor
Career Amount Donated
Citigroup PAC
JP Morgan PAC
Goldman Sachs PAC
Wells Fargo PAC
State Street Corp. PAC
Bank of America PAC
Bank of NY Mellon PAC
Morgan Stanley PAc
American Bankers Assoc. PAC*

* Political Action Committee contributed to by 7 of the 8 represented institutions
Data from the Federal Election Commission.

2. Rep. Randy Neugebauer (R-TX): "I think we can call this a shareholders meeting."

In the words of Harry Markopolos, "Truer words were never spoken." What is not clear is why the hearing had such a hostile atmosphere considering the spectacular returns that the shareholders have realized:

Total Federal 2007-2008 PAC Contributions
TARP Funds Received
Return On Investment
Bank of America
$926,821 $33,000,000,000
JP Morgan
$800,977 $25,000,000,000
Morgan Stanley
$585,300 $10,000,000,000
$688,100 $50,000,000,000
Wells Fargo
$767,250 $25,000,000,000
Goldman Sachs
$656,500 $10,000,000,0001,523,229
State Street Corp.
Bank of NY Mellon
Source: OpenSecrets.org

To be fair, the proceeds received by TARP institutions are not supposed to be gifts or even loans, for that matter. Instead, preferred stock, with an initial yield of 5%, was purchased by the Treasury, in order to inflate the recipient's capitalization ratios. However, the Treasury's equity far exceeds the common stock capitalization of some recipients, so it is difficult to envision institutions like Citigroup or Bank of America ever attempting redemption. Moreover, a failure to pay dividends won't trigger a default, like real debt, so when the preferred shares ramp up to a dividend rate of 9% in three years, the institutions will likely be allowed a quiet foregiveness--or at least the institutions who've stayed current on their campaign contributions.

While the Madoff and TARP hearings had a certain entertainment value, they were little more than the Theater of Self Interest. In both cases, there wasn't a Congressperson present that wasn't bought and paid for by the banking, securities, or insurance industry. I'm often confused as to why there is any debate regarding the primary cause of our current depression. It's quite simple: The legalization of bribery in the form of campaign contributions has rendered our government entirely subservient to corporate interests. Corporate interests purchased disastrous monetary policies, legislative complicity, and regulatory laxness and they did so at a deep discount. In my opinion, this depression was not only predictable, it was inevitable.

1 comment:

  1. The politicians could have been asking the bank CEO's what would be the best solutions and how they and the government could work together to solve this crisis, since the bankers have the unique perspective and understanding to actually solve the problems.

    Instead we heard "outrage"and posturing by people who have jobs with little accountability excepting the need for raising campaign contributions so they can keep their jobs/egos inflated. They appeared to have no clue about how to solve the banking crisis.