Henry the FrankenFinancier’s money tap is wide open right now. The program, called TARP, Troubled Asset Recovery Program (what we also call Bailout The Base) is Henry and President Jo Jo The Idiot Boy’s last run down the all-you-can-eat buffet line. Technically, TARP was supposed to buy up the troubled assets of banks, the toxic loans and financial fecal matter that were trashing Wall Street.
It turns out that TARP isn’t buying bad debt with their $700 Billion: The Treasury is buying bank stocks, to pump the money into the banks’ balance sheets, instead of picking up the crap loans. If you want to get you some, here’s the application form. Notice there are only five pages to it, but you’re limited to $25 Billion or 3 percent of your Total Risk-Weighted (shitty, or really shitty) Assets.
Which begs the question, who has been funded so far? Henry the FrankenFinancier won’t tell us, except to say that "…by October 26th we had $115 Billion out the door to eight large institutions."
Even more puzzling, is GE Capital: They’re now buddies with the the Federal Deposit Insurance Corporation in the US, to the tune of $139 Billion. Last I looked GE Cap was into real estate and leasing aircraft to commercial carriers. In the fine print, GE Cap has a piece of a federal savings and loan bank, some private-label credit cards and an industrial loan company, all of which get the nod for FDIC loan guarantees.
GE, being a stellar AAA-rated company saw everyone else getting some and figured ‘Why not?" The hook, such as it is, is the FDIC charges for the insurance and gets to look over your books. Based on past performance, the look-see takes twelve minutes while the coffee is being brewed in the boardroom. The rest of the hour consists of telling lies about your golf game: The audit is over when you give the auditor a reach-around.
Despite the "Economic Meltdown" and the attendant media spotlight, several compensation companies said "…that if the big companies don’t pay out the big bonuses, they’ll lose their top talent – people they want to keep around for when pastures turn green again." Technically, the TARP loans were to go into new loans, but with Henry the FrankenFinancier shovelling the money into bank stock, the TARP cash gets laundered and will eventually pay for employee compensation.
Factoid: From the CBS article above, even without bonuses, the mean annual salary for a securities industry employee was just under $400,000. According to Bloomberg, Goldman, Sachs had set aside $6.8 Billion for bonuses and Morgan Stanley had pieced off $6.4 Billion as their Fun Fund.
To scale this down to the more human size, let’s take a simpler example.
You work in a factory making widgets. You inadvertently make four hundred orange ones, instead of blue ones, because you were goofing off a bit and made a mistake. You have now cost your employer $1,000 in lost revenue as the orange ones don’t sell worth a crap, even in Singapore. Your boss does what?
Choice A: Gives you 100 shares of common stock in the company, pays for your membership at the local health club and writes you a personal thank you note for being a loyal, valued employee. You also get a plaque and a "Teamwork" pin.
Choice B: Hits you upside the head with a Johnson bar, offers to put your hands into a punch press for a few strokes, cancels your health insurance and fires your sorry butt With Cause, so you can’t get unemployment insurance. You are given nine seconds to run for your life out the door of the factory, while bleeding profusely.
Out here in the real world, Choice B seems to be prevalent. Why isn’t that the case on Wall Street? Oh, sorry, I forgot. We don’t have Henry on the speed dial.
RoadDave 