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A Shopping Spree With Your Money
by Robert Franco | 2009/01/15 |

The mortgage market is still paralyzed after dumping $350 billion of taxpayers hard-earned money into the big banks.  Now, Obama and his crew are working hard to make sure Congress doesn't block access to the second $350 billion.  But, it is time to really take a hard look at the policies that govern how that money has been, and will be, spent.  Largely, with the government's aid and your tax money, the banks that were "too big to fail," have gone on a shopping spree buying up other companies in financial trouble and making them even bigger.

Source of Title Blog ::

Republicans are attempting to block access to the second half of the TARP funds.  The Obama team has been trying to convince Congress to proceed with the funding by promising that it will be better spent than the first round.

There has been widespread discontent in Congress that the first $350 billion was squandered with purchases of stakes in ailing financial lenders and using it for struggling U.S. automakers, while doing little to thaw the credit markets.


But Obama's team has promised the remaining money would be better spent and accounted for and his advisers indicated to Republican senators on Wednesday that it would not be used to help other struggling sectors outside the financial industry.

Even before the money has been secured by the Treasury, at least one bank who squandered its share of the bailout money is begging for more.  Bank of America, which purchased Countrywide, has threatened that it might abandon its deal to buy Merrill Lynch because things look worse than they thought.  That, according to the government is not an option.

Bank of America told regulators in December it might abandon the takeover because of Merrill's worse-than-expected results, and the bank is in talks to get more U.S. aid, said three people familiar with the matter. The government insisted the Merrill deal proceed because its collapse would renew turmoil in the financial system, said the people, who declined to be identified because talks are private.

Combined, Bank of America and Merrill Lynch received $25 billion in bailout money.  And, the deal to purchase Merrill Lynch was rushed through the same weekend that the government decided to let Lehman Brothers fail. 

What brain trust came up with this plan?  What sense does it make to bailout troubled companies and encourage them to buy other failing companies?  They were already described as "too big to fail," and the government helped them get bigger and take on more risk.

When the problem is that we have financial companies too big to fail, the solution is not giving them money to buy other struggling businesses.  The more appropriate strategy would have been to break them up and allow smaller companies to buy up the pieces and grow.  There are many smaller, regional banks that were not mired in subprime debt that could have made better use of the TARP funds to expand.  The result would have been smaller companies, that aren't too big to fail, that could have emerged stronger with a larger market share.

Basically, we have spent $350 billion and we are in the same sinking ship that sprang a leak many months ago.  Money that was supposed to be used to buy risky mortgage backed securities to free up capital for the finance industry to start lending money again, has instead been used for acquisitions.

In addition to the Bank of America/Merrill Lynch deal, there have been several other acquisitions by companies that have received TARP funds.  Wells Fargo received $25 billion and it just completed its acquisition of Wachovia.  PNC got $7.7 billion and bought National City.  Morgan Stanley got $10 billion and it just acquired a controlling interest in Smith Barney from Citigroup.  Ironically, CitiBank was going to buy the banking operations of Wachovia before Wells Fargo made a better offer to buy the entire bank holding company. 

If Congresses releases the other half of the $700 billion bailout funds, it must make sure that the money goes to provide meaningful foreclosure relief.  They have to put an end to the merger and acquisition mania. So far, it seems that the $350 billion we spent just bought us a bigger shovel to dig a deeper hole.

Robert A. Franco


Categories: Mortgage Industry

989 words | 2855 views | 5 comments | log in or register to post a comment

I think you're right on the money...


I think you analysis of the release of the remaining TARP funds is exactly right. I find it interesting that in addition to the opposition by Republican lawmakers, Democrats are also expressing concern over the use of the remaining funds.

I think that House Resolution 384, introduced by Massachusetts Representative Barney Frank, addresses some of the concerns involving the lack of oversight and discretionary implementation procedures. If this bill is enacted and amends some of the language of the original TARP legislation, it would definitely be a step in the right direction. I doubt it would fix all the problems, but it would lead to greater transparency and the placement of more economic responsibility on the shoulders of D.C.'s officials.

Just my opinion, though. Great blog topic.

Best regards,
Jarrod A. Clabaugh
Editor, Source of Title

by Jarrod Clabaugh | 2009/01/15 | log in or register to post a reply

I think you're right on the money, too!

I think you are exactly right about what went  wrong with the first installment of TARP funds.  I agree that it would have been far better to see those funds go to smaller, financially healthy banks to buy off chunks of the lenders that were "too big to fail".  Instead, as you pointed out, they created banks that are now waaaay too big to fail.

I'm not so sure about releasing the second installment until there comes forth more of an answer than "it will be put to better use" or anything to that effect.  I am beginning to think our representatives in government are still in panic, "do something - ANYTHING!" mode, and will rubber stamp just about anything right now.  We are going to be paying for their hysterics for a very long time.

I have not seen House Resolution 384.  But I can't help but prefer that Barney Frank go sit down somewhere and get out of the way.

by Patrick Scott | 2009/01/15 | log in or register to post a reply

Ahh, yes...Barney Frank

The man who kept telling us what "great assets" the GSEs were, and who wanted taxpayers to pony up as much as $200 billion to bail out Fannie and Freddie while opposing any attempt at actually fixing the problems that got us here in the first place.

by Scott Perry | 2009/01/16 | log in or register to post a reply

Not THEIR money!!

This "bailout" is a pure joke. If Americans really knew what was in this bill, they would be furious! This didn't work with Hoover or FDR, what makes anyone think it will work now? How does spending 250 million on STD prevention create any jobs? Oh wait the jobs that will be created are GOVERNMENT jobs. HMMM, who pays their salaries........exactly!!

by Kurt deVries | 2009/01/29 | log in or register to post a reply


Oh, did you not know that "prevention" is what we need no matter where it comes from on all fronts.  I think Nancy Pelosi said that this morning - I think or maybe the day before - or something about any prevention of any kind would help the economy, especially STD's because it would reduce the cost of health care in the long run or something to that effect.  I can't remember exactly what she said and of course can't find it now.  I thought it was a load of crap which is probably why I can't remember it exactly. I am going to keep looking for it.

I missed the part about it creating jobs tho.  That is interesting because I am pretty sure to work in the places that treat STD you need to be a DR, Nurse, or some sort of MedTechi type person, eh?  So, if I was a DR or Nurse, you can bet I am not looking for a job in the field of STD prevention. ... Thanks but no thanks!!!!!

Unfortunately, the average American still believes we have civil liberties (BEFORE i GET BLASTED - we still have some and more than other countries but if you look closely, you will see through the rose colored glasses and find the truth, sooner or later we won't have any left) and that the Gov't doesn't do anything illegal....they also believe that the Govt looks out for us little people.  The news networks/other media have brain washed the general populous into believing it because they are directed what to tell us by the govt.  Scary thought, eh? 

by Clanci Nelson | 2009/01/29 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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