For those who opposed the massive bailout, a report in the New York Times may be little surprise. A reporter was able to get into a telephone conference call with JPMorgan Chase to hear executives discuss the $25 billion it received from Congress. Just four days after the bailout, JPMorgan Chase’s chief executive, Jamie Dimon held the conference call during which an executive admitted that Chase has no intention to use the money to make new loans but instead will use it to try to take over other companies.
The critical moment on the Oct. 17th call came when someone asked “Chase recently received $25 billion in federal funding. What effect will that have on the business side and will it change our strategic lending policy?”
Here is the response:
“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase. What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”
I feel much better.
For the full story, click here.
“If you make a bad investment, whether it’s a stock, a vintage car or a baseball card, and the value plummets, you can’t turn around and say, “Well, now I can no longer afford to make the payments.”
They just don’t want to.
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Mojo,
I always enjoy reading what you have to say as well. I think that the firms being bailed out made bad investments, which they knew at the time were a ponzi scheme and are doing exactly what you said: turning around and saying they won’t make the payments, they’ll take the taxpayers’ funds. they’ll keep the bonuses, their lavish lifestyles, and remain completely unaccountable for any of it.
In Toledo, we have a really high foreclosure rate. Many people have been and continue to be laid off. We have a very high unemployment rate and 1 of 10 of our citizens is on foodstamps. Many people took out mortgages that they could afford at the time. Some of these mortgages were taken on due to the lender assuring them they could just refinance the home in a couple years–no problem. I own my home so I’ve read through my mortgage papers and I can’t say they’re all that intelligable without a law degree. Many people simply don’t realize that you really do need a knowledable atty. to tell you what the hell the papers mean. I realize this sounds naive, but it’s true. People rely on loan officers to tell them the facts. In fact, they have some reason for this reliance, as technically, these loan sharks have fiduciary duties to the buyers, mostly honored in the breech. They simply don’t realize that the whole process of buying a home is fundamentally adviserial at every point. It’s lambs to the slaughter.
Secondly, many people here were able to afford their home, but have lost their job, or gotten ill. It’s not a matter of not wanting to pay the mortgage, it’s a matter of they can’t.
To me, it makes no sense not to work with people to renegoitate these mortgages. House lie empty, bringing down surrounding property values. Houses get stripped bare for parts. Worse to me, is the horrible disruption that being expelled from one’s home and scrambling to find some place to live (and more homeless around here are families). This itself causes people to have difficulties keeping a job, it’s a hugh stress on families, especially displaced children. I see no reason for this misery. Banks will lose money on a foreclosure at any rate. Why not work with people to keep them in their home for the same loss they’d take on a foreclosure anyway?
I don’t know if you’ve read any books by Elizabeth Warren from Harvard but she goes into great detail, and has a lot of research behind her explanation of how so many of us come into overwhelming debt.
And just to remind you. The secret word for today is still “Fraud”.
Why does Jill threaten you so? I don’t think anyone wants to challenge your alpha female position. After all, who could? You were already at Plymouth Rock to greet the Pilgrims, and you’re the mother of all the daughters of the American Revolution. You’re the best, the most, the oldest, the first.
You often have clever ideas, Patty, and you have a dry wit that can be really fun. But your insults are escalating, and it’s increasingly unbecoming.
‘If you’re sitting at the poker table and you can’t tell who the mark is, then it’s you, the buyer…
—
Yeah, OK – at least admit this is not your thought, originally.
Don’t be like Jill ie mindless- and keep regurgitating whatever you hear.
She makes me sick!
If that’s who you are then, both of you – just ‘get off the stage’…
Sorry.
Jill doesn’t know what she is talking about!
Obviously, neither one of you is in the real estate markets
OR the stock markets…
Jill –
I absolutely agree with you on almost everything you’ve stated. Appraisers were threatened with being black-listed and not working if they didn’t come back with higher values to please the lenders. And yet they complied with the scam so they could get work.
It’s such a mess. Realtors who work for the NAR, which is largely unregulated (they pay lobbyists to ensure that) make a higher commission if the home sells for a higher price, so there is hardly such a thing as a “buyer’s agent”. The lender, the seller, the appraiser and the agent are standing to gain if the home sells for much more than it’s actually worth. But buyers ‘bought’ what they were being sold. They didn’t do their research. Many saw dollar signs and went with it.
If you’re sitting at the poker table and you can’t tell who the mark is, then it’s you, the buyer. Yes, it’s really that nasty out there under a Republican administration.
It’s called a ‘housing market’ because markets fluctuate. They go up and they go down. If it only went up it would be called the ‘housing miracle’ …
I agree there was rampant fraud. But I think the majority of buyers took their purchases too lightly. They didn’t read the paperwork. It’s only the biggest financial decision most people will ever have to make in their lifetimes. I’m just saying that nobody is really innocent here, except those who did not participate but still have to pay, through their taxes, for the damage.
If you make a bad investment, whether it’s a stock, a vintage car or a baseball card, and the value plummets, you can’t turn around and say, “Well, now I can no longer afford to make the payments.”
They just don’t want to.
But I absolutely enjoy your remarks, Jill.
Mojo,
There absolutely were scammers who bought homes to flip. Those are not the majority of home owners in trouble at this time. You’re not taking into account the many, many people who really were victims in the market. There is a large body of evidence that appraisers gave inflated “market” values to homes with the encouragement (often threats) of lenders. Mortagage lenders are on tape saying they lied to buyers about the loans, and ways they would make the loans affordable to them. Some of these lenders are even now starting to be proscecuted. When your lender “explains” how this home is afforable to you and you think the appraisal is an independent indicator of your home’s worth, even when it’s not, I call that fraud. Fraud is a crime. People who had excellent credit were deliberately put in more risky loans because this resulted in greater profit to the lender, both on the origination fee, and then when the loan was immediately bundled and sold, again and again at a profit each time. No one in the finacial industry was a victim when buying these bundled loans, but I don’t see how fraud perpetrated on homeowners (which is even now being prosecuted) can be understood another way than being a victim of illegal activity.
“When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners …”
There’s a few problems with that phrase. If you bought a house and agreed to pay back the loan, it does not matter whether the home is worth more this year or less. You bought the home and agreed to pay the mortgage. If you could not afford the loan you agreed to pay, it does not matter how much the home is ‘worth’. You thought it was worth a certain amount and agreed to pay that amount, based on the loan terms you agreed to. You decided to take that loan and pay according to it’s terms.
Unless you were betting on the home rocketing up in value, and now you simply don’t want to pay the mortgage because it isn’t worth what you thought it would be. Were many of these people planning on ‘flipping’ the house? It’s not a stock that you can purchase in the morning and sell in the afternoon. Weren’t they planning on living there for a decade or actually paying it off? Didn’t they consider whether or not they could actually afford the terms of the loan?
When I hear politicians claim that people “can’t afford to repay their loans because the house is worth less than what they paid for it” it makes me laugh. Of course they can’t afford it, but it’s not because the home is worth less; it’s because they couldn’t afford it to begin with, they never took that into consideration, they don’t feel like continuing to pay on a poor investment choice, and they were wrong when they thought it would be worth more the following year. They took a huge risk that didn’t pay off.
Nobody held a gun to their head and forced them to take a risky loan.
There is a sh**load of blame to go around, but these ‘poor, hapless homeowners’ knew what they were trying to do; invest in a house and turn a big profit.
Simply excusing the poor decisions of the home-buyers and calling them victims is absurd.
This likely use of the bailout funds has also been endorsed by Stephen Schwarzman of the Blackstone Group. (Schwarzman made headlines a year or two ago when he threw a multi-million dollar birthday party for himself.)
‘… maybe we want them acquiring less stable institutions with the money they didn’t ask for.’
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You get it, 1L. If I were Jamie Dimon, I’d probably do the same thing given the way it was presented – ie take the money now or if you get into trouble later, expect no help from the feds ie they would be ‘allowed to fail’. Sounds like a threat to me. I’d be looking to cover some serious ass – my business, my shareholders, my depositors, and my employees while keeping and eye on and a finger in as many investment pies as I could swing.
Anybody else ever wonder what happened to Eliot Spitzer?
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html
Predatory Lenders’ Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers
By Eliot Spitzer
Thursday, February 14, 2008; Page A25
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers’ ability to repay, making loans with deceptive “teaser” rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York’s, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.
The writer is governor of New York.
1L,
While in AC, remember to tip your servers and never play cards with someone named after a gem stone and/or a state in any combination.
1L,
It was’n really imprudent lending, it was fradulent. The banks knew exactly what they were doing and they made a whole lot of money doing it. Failure to lend while aquiring other banks who also won’t lend will not stabilize the financial situation. This is another scam, nothing more.
I do wish you luck at AC!!!
Gyges,
Absolutely a fair point. The only thing that worries me some is the idea that imprudent lending at least in part got us into this mess, and shortsightedness of having one of the more stable institutions be forced to lend when it could potentially use the money to stabilize other institutions so the government won’t have to.
After seeing all the people who I mistakenly thought had any idea what was going on fall from grace (Greenspan, Paulson, etc.) I’m convinced anyone who says they know the way out of this is wrong or lying. I’m heading to Atlantic City and putting all my student loans on black. Wish me luck.
Then he should go on trial for fraud.
Another thing that’s interesting about the tape is how open these people are that we’re in recession heading for a depression. Kevin Phillips has pointed out many times how most of the economists we hear are paid hacks who speak the “happy talk” even when they knno it’s a lie.
This behavior is so incredibly shameful and stupid. We are in a true economic crisis here. Wealthy people need to pull together with the rest of the population for everyone’s sake. This is not the time to misuse funds, status and power for bad ends. I do not understand how wealthy people think it’s fine to watch the suffering of others while they sip their wine. That is morally grotesque. If ever there was a time to pull together for the common good, this would be it.
The Fed may be able to force banks to take taxpayer money, but they can’t force them to lend it back to the taxpayer. Instead, banks are hoarding the cash, or using it to fund mergers and takeovers of other banks. And now GM wants in on the action (though they are not a bank). They are asking the Treasury for a big chunk of change to fund GM’s merger with Chrysler. That’s nice.
That used to be a private endeavor. Now these mergers are being socialized. We are paying (and will continue to for a long, long time) for these acquisitions. And when the bill comes due and our leadership has to make the choice between letting our infrastructure crumble or raising taxes to pay for the repairs (because over a trillion will have been handed over to banks and companies like GM) we’ll be on the hook for that, too. Once we’re struggling from higher prices, a weaker dollar, debt and higher taxes, we can always go down to the bank that we helped rescue and beg for a loan. Maybe by then they’ll be in a ‘lending mood’ again (for a nominal interest rate, of course).
Lending the taxpayers money that was boosted from the taxpayers. Now that’s original.
1L,
What you’re saying might be the rationalization, but here’s my take (this analogy isn’t perfect):
Say I get money from local charities so that my family has enough to eat. The truth is that my family has enough money for food, but not for a big T.V. If I use that money to buy a T.V., isn’t that a scam?
This is one of the consequences of the Authorization to Use Financial Force that opponents of the bailout bill were most concerned about. It was foreseeable. This money should be returned to the tax payers immediately. Consolidation of the banks in the hands of GS and friends is a disaster for consumers. Failure to force the banks to renegotiate the loans will only worsen the economy. Not that they care, but we should.
Playing Devil’s Advocate here, from what I understand there was an agreement that all the large banks should take bailout money even if they didn’t need it, to avoid placing a scarlet letter on the ones who did and seeing a WaMu style bank run take place.
If JP Morgan in fact is one of those firms that didn’t need the money (they and BofA have been the most conspicuous buyers in this merger mania), maybe we want them acquiring less stable institutions with the money they didn’t ask for.
Then again, maybe we want to start stocking up on canned goods and bullets for the oncoming post-apocalyptic landscape we’re sure to face.
So when you excuse and reward bad behavior, and enforce no negative consequences, it just encourages more bad behavior? Somebody should write books about this. Think of all the topics you could cover. I mean I can see applications in pet ownership, child raising, sports team management, … the list just goes on and on.