Saturday, October 25, 2008

The Senate's Recidivists

The guys that crashed the train, are still trying to run it....

A railroad engineer who caused as much damage to a freight train, as these guys did to our economy, would be in jail at this point, not back behind the throttle. Yet here we have the unrepentant Senators Chuck Schumer (D., Fannie), Jack Reed (D., Freddie) and Robert Menendez (D., N.J.) calling on the Treasury to set "lending goals" for banks receiving capital injections under Treasury Secretary Hank Paulson's rescue plan. The press release issued by Senator Schumer's office complained that banks receiving public capital "may not fulfill the main goal of the Treasury program, which was to increase lending activities in order to unfreeze the credit markets." Instead, these Senators said, the banks might choose to "hoard" the cash.

The Wall Street journal reports that:

"Banks must understand that these funds aren't a gift," Senator Menendez warned, ominously. And here we thought that "not a gift" was covered in the part of the plan that requires the banks to pay interest on the capital to taxpayers on a preferred basis over private shareholders.
Note to Senator Schumer, et al.: Banks don't make money by "hoarding" it, or "stuffing it under mattresses," in the New York Democrat's words. They make money by lending. But lending has been constrained in part because losses on past lending and investment have left the banks short of capital. If a bank should decide that keeping that capital unfettered is better than going bankrupt, for example, that should not be taken as evidence of greed or a lack of public spiritedness. Nor would compelling banks to make loans ensure that "taxpayers are protected," as Senator Reed claimed. In fact, the opposite could be true, depending on the magnitude of potential losses from loans already on the books and the quality of the new loans.
After more than a year of losses on mortgage investments, declining home prices and credit-market turmoil, the banks are busy rebuilding their balance sheets. More banks are likely to fail before this thing is over, and some of them will likely have received money from the Treasury along the way. The first priority for banks has to be to build up their capital base and dispose of dodgy assets so taxpayers don't take those losses.
What the banks need from each other is confidence that their balance sheets are sound. Calling on them to return to pre-crisis levels of lending, as the Senators do, has exactly the opposite effect: It increases the odds that they will take on business to please political masters, not because they can afford to do so.
Now that Treasury is buying bank stakes, the danger is that every politician in the Beltway will want a special dividend payable to him. This is one more reason for the Treasury, in this Administration or the next, to appoint someone to run this program who cannot be bullied. Mr. Paulson is still asleep at that switch.

The Senators' letter is another reminder, if one were needed, that the sooner the feds get out of the banking business, the better for the banks, the economy and the country.

Once again we have Sen. Chuck Schumer, the same person who caused a run on IndyMac by releasing letters to the public that he sent to bank regulators and to the Federal Home Loan Bank of San Francisco, attempting to manipulate private banking operations.  

It is now known that, just coincidentally with the timing of Sen. Schumer's destruction of IndyMac,  a group of investors  who have donated more than $700,000 to Senate Democrats and the Democratic Senatorial Campaign Committee during the four years that Sen. Schumer has chaired the campaign committee, were targeting IndyMac, and just waiting for the price to be run down (there must be a Justice Department investigation of Schumer's actions).

This present action of Sen. Schumer, along with other Democrats, is clear notice of the Democrat's bold intentions to exercise significant interference and control of the financial markets, in an attempt to shape our economy in a way that will once again have disastrous results similar to their culpability with Fanny May and Freddy Mac.  

It's imperative that additional safeguards must be set up in order to prevent additional hazardous interference and manipulation by Congress.


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