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Paulson & Co. Teaches Bair Econ 101
Almost nothing gives you the same bang for the buck humor wise as a good, solid comment period on some or another proposal from the FDIC. When they start off with a good bit of nonsense (which is usually), one waits patiently for the appearance of Benjamin Dover III (for the humor inclined) or perhaps Paulson & Co. (for a bit of Bair hunting).
The FDIC sets the stage with "supersize me" tier 1 capital requirements for acquirers:
Recently, private capital investors have indicated interest in purchasing insured depository institutions in receivership.1The FDIC is particularly concerned that owners of banks and thrifts, whether they are individuals, partnerships, limited liability companies, or corporations, have the experience, competence, and willingness to run the bank in a prudent manner, and accept the responsibility to support their banks when they face difficulties and protect them from insider transactions.
Especially in light of the increased number of bank and thrift failures, and the consequent increase in interest by potential acquirers, the FDIC has evaluated the policies that apply in deciding whether a prospective acquisition is appropriate. The FDIC has reviewed various elements of private capital investment structures and considers that some of these investment structures raise potential safety and soundness considerations and risks to the Deposit Insurance Fund (DIF) as well as important issues with respect to their compliance with the requirements applied by the FDIC in its decision on the granting of deposit insurance. The concerns center on the need for fully adequate capital, a source of financial and managerial strength for the depository institution, and the potential adverse effects of extensions of credit to affiliates. These structuring issues are present with respect to any new proposed acquisition of a failed insured depository institution.
Translated: Since bank failures are so common these days, common enough to be a regular Friday afternoon feature on the likes of Zero Hedge, we thought we should clamp down on the acquisition criteria to limit the number of qualified buyers. We are quite good at regulating safety and soundness (which obviously explains the high number of bank failures) so we are confident this will improve matters dramatically.
Tempted by the open comment period, no less than Paulson & Co. jumps into the fray with a nice summary of both their view on the proposals and their own investment strategy:
Our primary current investment focus is to provide capital to restructuring companies hurt by the financial and economic crisis in both the financial and other sectors. In the financial sector, in addition to investing $400 million in the equity of the recapitalized Indymac we have also provided equity capital to Bank of America, Goldman Sachs, Morgan Stanley, State Street, Regions Financial and SunTrust to help them meet their "stress tests" and to repay the government's TARP capital. In total we have invested close to $4 billion in equity in this area. We are interested in providing additional capital to Indymac, if needed, to fund acquisitions by Indymac of other banks, and in investing additional capital in recapitalizing banks, which we did recently for Marshall & Iisley as that banking company sought to improve its capital base.
While we appreciate the FDIC's mandates to ensure the strength of the banks and to protect the deposit insurance fund, investments in failed banks must be competitive with alternatives in order to attract private investment firms Although Paulson wants to invest more in failed banks, as the complexity, capital requirements, risks and limitations of such transactions increase we have to consider other potential investments. For instance, we can put new capital into existing banks through the public markets, which have far lower capital requirements, unlimited government guarantees on deposits, TLGP support, and no restrictions on our liquidity.
The entire letter is well worth the read.
The larger message is a familiar tune. The FDIC has seemingly transformed itself into a gate keeper to make certain no one makes too much money helping promote a financial recovery- for your protection from pitchforks, dear private investor, between you and which there is only us. Cleaning up financial messes is meant to be an altruistic job (particularly when you've spent months demonizing private capital as somehow responsible for the mess everyone is presently in).
Expect puzzled looks and much stammering once the FDIC and her sister entities discover that no one else is going to buy up banks just because its the "right thing to do."
Hey! Anyone want to come see a movie with me? I hear PPIP is playing!
- crickets -
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Hellos to you - Ben Dover (from blogspot .. trying to figure out how to log in, quick what's thirteen - (-14)??)
Ben- if that's you... email me.
marla [ at ] zero hedge [ dot ] com
Have you seen Bruno yet? My ex-wife and Howard Stern assure me it's hysterical. I'll sneak in sodas for both of us
The FDIC is broke, broke! $500 billion HELOC from broke Treasury?? LOL LOL omfg todo: buy gold and silver coins asap
Marla....are you referring to Ben Bernanke not being able to add? :)
-Silence
And so the fight is taken public. Blair starts to flex her muscles as the gatekeeper, and makes sure no one is confused as to who butters her bread (the banking elite). Private money need not apply anymore. Stop trying to question the shady deals to give away assets to the guys in charge; we know it's not "fair;" but I, Herr Blair, have much higher ambitions than the FDIC - I know who can get me appointed and who cannot.
"Bair."
Holy cow, how did I type that wrong so many times without realizing it? Proofreading will never be a speciality of mine.
maybe this whole bankheist is alot like the "Blair Witch Project"? We are scared and getting killed by it?
All that talk of "Blair" reminded me of Tony Blair (shudder).
@ silencedogood
ben dover is seperate from ben bernanke, usually dover is in front of bernanke, which we call "in position" when it relates to bernanke and his organization
blair? since when they allow actors to run the FDIC; I mean she is that girl from the Witch Project, right?
Horrible, horrible joke. It fails on so many levels it's almost impressive in its perfection of suck.
Naw. As in Linda Blair, from head-spinning Exorcist fame.
I think I understand. Complain about the FDIC giving money to Paulson to buy Indymac, and then complain about the FDIC not giving more money to Paulson.
No, I don't think you understand. And if that was an attempt at sarcasm, it wasn't a very good one.
This is really quite simple (if it wasn't sarcasm):
You can't expect private money to jump at the chance to help recapitalize/revitalize (heh) troubled banks (esp in receivership) if you're going to impose a set of restrictions that makes investing LP $ a serious legal liability for any reasonably resonsible PE/HF manager.