Japan Provides Proof That Bank Bailouts Work 11 comments
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Thanks to comments by Japan's chief financial services regulator this week, media is finally starting to report that bailing out banks can actually make money for the taxpayer (which incidentally I've been desperately trying to teach everyone for months).
As a history lesson, much like the situation in the U.S., the Japanese banks became crippled by loans on inflated real estate assets in the early '90s and the financial system there became virtually insolvent. When the Japanese government decided to support their banks and recapitalize them with public funds -- pumping trillions of yen into 22 systemically important banks -- the administration faced an outraged public, while bank executives faced fuming shareholders, media attacks and even death threats.
Takafumi Sato, Commissioner of Japan's Financial Services Agency, made his comments to media yesterday. The Financial Times reported the details, but for your convenience here are two of Sato's key quotes [my comments in italics]:
The Japanese government made profits of more than Y2,000bn ($21bn) on the Y8,600bn of public funds it injected into Japanese banks during the country's banking crisis. [Yes, the government eventually got their money back plus 25%!]
[...]
The fact that the Japanese authorities made a good business out of this whole operation could be used to persuade the people that the use of public money is not to save the individual banks but to save the financial system as a whole."
Now that the U.S. public has been through a similar emotional (and financial) roller coaster as the Japanese experienced in the '90s, it's time to move on past knee-jerk responses and blind hatred for the bankers and instead start looking to how we can all benefit from this crisis and our involuntary "investment" in the banking system.
General media in the U.S., (not just Wall Street Journal), should now quit spewing vitriol and instead report the facts. While no one is happy that the banks had to be bailed out, at the end of the day this will NOT cause increases in taxes and our children and grandchildren will NOT be paying the bill for TARP.
The banks are paying the bill, at interest rates up to 8% and this week, and in fact they have actually already started paying back the principal. Citigroup (C) alone has given the taxpayer a three times better return on their investment than if they had invested in the S&P 500 Index during the same period!
Two years from now, when the economy is back in full steam and 90% of the TARP has been repaid, it will become evident that Obama and his team, despite the fierce public anger, had the political courage to do the right thing in 2009 by bailing out these banks. I just hope that the media and public have the humility to acknowledge the truth at that time.
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On Jun 18 10:08 AM Chemist29 wrote:
> Last I checked TARP was started under bush. but attribute everything
> to obama....
How much statistical significance should we attribute to one data point of dubious success - Japan?
Or any indication that the huge bonuses paid to bankers led to improved performance?
Any fool can go bankrupt.
As Whitney and King have said, large banks need breaking up - they are only good for extracting larger bonuses.
Regulations need overhauling so that directors are properly accountable.
Thorough audit would reveal that the most appropriate place for many of the people who have scarpered with hundreds of millions were in fact engaged in fraud, and should be in prison, not in mansions.
There was no justification at all for bailing out banks and leaving management intact.
Normal bankruptcy procedures should have been followed, with Government money being used to guarantee depositors and set up new lending institutions, not to prop up zombies who are now crucifying the real economy as they need all the bail-out cash to pay off some of their duff bets, and have nothing to lend.
Substantial monies could be raised by prosecuting those responsible for lack of fiduciary responsibility, and the common practised of directors fiddling their way out of that by the company guaranteeing against any claims for this should be outlawed retrospectively.
It is the equivalent to offering burglars insurance for loss if income during prison sentences.
Most of the nest eggs of retirees are in the process of being pretty effectively zeroed out as a result of the financial shenanigans at the banks - whilst the perpetrators make off with the loot, as in the recent sucker rally based on mark-to-myth accounting - it is notable how many directors took the opportunity to cash out, as they were well aware that it is the result of market manipulation rather than improving fundamentals.
By the way, many of the people who were in charge of the banks when they made the bad business decisions are already gone. Look at Citigroup. Gone are Rubin, Prince, Armstrong, Carpenter, Willumstad, Krawchek, and dozens of others. Now you think that the current batch, who has only been in charge the last 18 months (and have been desperately trying to fix the problems created by their predecessors) should be kicked out too? Remember, these ships take a long time to steer. Changing captains when their 75% done turning the boat around makes no sense whatever. Let Pandit finish the job. I don't know about Lewis at BAC though. Although I think he got screwed by the government on the Merrill Lynch deal (see my Instablog on this topic), in reality when you're paid millions, you should be tough enough to stand up to anyone and make the right decisions.
To be clear, the money which has gone into the property bubble has gone, and it is not coming back.
These bandits have misallocated funds in the trillions, in housing and empty malls.
To be perfectly clear, the first to face possible criminal charges should be the heads of the ratings agencies, who appear to have a case to answer for fraud in absurdly placing top ratings for bundled duff assets, and who plainly had a conflict of interest because they were being paid by the people whose assets they were misrepresenting.
Joining them should be those who wilfully misallocated funds to provide mortgages which were obviously unpayable - lack of fiduciary responsibility being the charge.
Most of the mob heading up the major banks, and particularly GS and JPM, would seem to merit an investigation under the terms of the Rico Act, for criminal conspiracy to defraud.
Your notion that anyone is advocating prosecution of those who have later been installed to clean up the mess, and were in no way responsible for creating it, is obviously a red herring to distract from the need to freeze the assets and criminally prosecute a host of individuals who looted their companies, and now the taxpayer, and have made off with the swag.