It is bad enough that the Federal Reserve is rigging the game in favor of the large financial firms by holding the federal funds target rate at historic lows; permitting depository institutions and others to obtain money at little or no cost and paying their investors and depositors next to nothing in interest – in fact paying depositors and others at rates far under the rate of inflation. Truth-be-told, every dollar kept by a depositor in a bank is losing value every second of every day.
Now comes the bastards at both the Federal Reserve and the United States Treasury who are apparently telling the financial institutions to conserve cash, not increase dividends or to repurchase shares which would provide a greater return on investment for those who have invested in the institutions' shares.
- Do they think that the investing public will not see the accounting machinations which have allowed these large financial firms to book a profit when there has been little or no material gain in the assets they are holding?
- Do they think that the investing public will not see through the charade of politicians attempting to restrict executive compensation and bonuses while allowing key executives to base bonuses on these imaginary asset gains?
- And how much longer will the investing public be subject to the whims of a central bank that is privately owned, with little or no transparency or accountability?
According to the Financial Times …
“Regulators tell US banks to hold funds”
“US regulators have told banks not to increase dividends or buy back shares until political and economic uncertainty surrounding the industry dissipates, in a move that will delay by months the return of capital to shareholders.”
“Some investors in financial stocks argue that winners of the credit crisis, such as JPMorgan Chase and Goldman Sachs, have profitable businesses and strong balance sheets and should consider raising dividends or buying back stocks.”
“Executives at the two companies have talked in public and with regulators about the possibility of returning cash to investors after taking action to conserve resources during the turmoil. But they say they are not in a rush to go ahead, especially if their watchdogs oppose such moves. ‘Regulators are gun-shy at this stage, partly because they fear that giving the green light to healthier banks to return cash to investors would prompt demands from more troubled institutions to do the same,’ one senior Wall Street executive said.”
For the observant investor, one could almost see the various regulatory agencies bend over backwards to prevent additional failures at thinly-capitalized institutions in order to maximize consumer confidence in institutions which should have been ruled insolvent long ago.
Not only depositors and investors, but also homeowners in distress …
Once again, President Obama makes a speech and apparently expects the world to act accordingly. If only it were that simple. Almost every Administration program for helping homeowners in distress has been voluntary and is not subject to adequate oversight by the federal and state regulatory agencies.
In one instance, we find that performing an adequate loan modification on a borrower’s underwater mortgage requires more than simply lowering the interest rate and extending the loan’s maturity. It requires a reduction in the principal loan amount that somewhat tracks the true worth of the underlying property. Of course, if institutions engaged in principal reductions, they would need to book and immediate loss – and that could have disastrous consequences on marginal lenders. They would need to raise additional capital in a tricky market to meet their core capital requirements. Their cost of borrowed funds would be higher. And the regulatory agencies might revisit the institution and decide that it was “unsound” and should be placed in conservatorship. The thought being, better to play out the game a little longer than take precipitous actions with potentially dire consequences. And when I say dire consequences, I mean to the executives and major investors – because I do not believe that they give one whit about their depositors or small shareholders.
And in another instance, we find that some of the assets on the books were not originated by the financial institution but may have been purchased at distressed prices. Perhaps as low as 40 to 50 cents on the dollar. A $300,000 mortgage loan purchased for $150,000 and secured with a property now worth $175,000 only requires a little time until it becomes an extremely profitable transaction. Therefore, it is in the institution’s best interest to simply let the borrower remain in possession and not commence foreclosure rather than attempt a loan modification.
In both instances, no matter what members of Congress or the Administration may say or do, there is little regard for the distressed homeowner and a lot of regard for that institution who employs lobbyists and is a source of campaign funding.
Cynical and not exactly the “official” story, but based on observations of what the Congress and Administration are doing, rather than saying, seems to prove my point.
Bottom line …
The American citizen who has been thrifty, pays their bills on time and has shown fiscal prudence is being royally screwed by the large financial institutions and their bought and paid for elected officials. Not that they needed to do much more than promise to fund the 2010 and 2012 election cycle to secure egregious concessions from both the members of Congress and the Administration’s regulatory agencies.
Each individual should look to their own resources to make financial decisions; not upon some faux loyalty to a friendly bank which in reality does not exist, but based on their own needs. If this means turning in the keys and taking a short-term hit on your credit report, so be it. For these individuals, they may be able to secure decent housing at a more affordable price and use the money that they saved to enter the market at a later date. ‘
It is my belief that, at some time in the future, all will be forgiven by the financial institutions and credit ratings agencies as they pursue the next asset bubble created by a dysfunctional Federal Reserve – originally created to keep the United States from seesawing between boom and bust economic cycles.
In the final analysis, take care of yourself and your family first. The government and the financial institutions are only pretending to act in your best interests – where, in demonstrable fact, they are acting in their own self-interest.
-- steve
Reference Links:
FT.com / Companies / Banks - Regulators tell US banks to hold funds
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