Published in CommPRO.biz 2013.09.04

Too Small to Ignore?

It appears that Darryl Layne Woods may spend a year in jail and have to cough up a hundred grand in fines. Woods is the majority owner and former Chairman and CFO of the Mainstreet Bank in Ashland, Missouri; the bank has branches in Bunceton and Prairie Home. The three small towns with a total population of a little over 4,300 are in the Columbia, Missouri area. In addition to likely jail time and the fine, Darryl has been barred from ever again having any role in banking.

You see when the government was passing out money to support the banking sector following the crash, Mainstreet was given a little over a million dollars. Darryl “invested” about a third of that in a luxury condo in Florida. When asked what they had done with the money, the bank was not totally forthcoming about the condo. Darryl signed that document and is taking the fall. Part of the plea deal absolved his wife from any involvement. The bank will, of course, have to pay back all of the TARP funds if they haven't already. It turns out that the bank sold the condo in Florida this spring and made a few bucks on their investment.

A statement on the Mainstreet website from the bank’s Board seems to indicate that it’s all some big misunderstanding and that the bank had been making real estate investments of this nature for some time. The government claimed that the Florida condo was intended for use by Darryl and other bank executives.

Mainstreet Bank has been around for ninety years. It’s the kind of community bank that’s vital to small town America. Darryl Woods is 48 years old and listed as “majority owner.” That could mean anything from 51% up; a local newspaper just referred to him as the bank’s “owner.” We would guess he was used to doing whatever he felt like and this time he went too far, or was careless with the paper work.

It’s hard to understand how this differs from the banks taking billions in TARP and subsequent billions from the Federal Reserve while somehow managing to pay $140 billion in bonuses to their executives in 2009 alone. That’s the same year Darryl Woods spent $381,487 to buy a condo in Florida. Did the big banks just do a better job filling out paper work than the Mainstreet Bank in small town Missouri?

Last week (2013.08.27) Bush era Treasury Secretary Hank Paulson, the architect of TARP, said he was very disappointed with the bonuses. That would seem to be about five years too late. Paulson went on to claim that he could not have made bonuses a part of the deal for TARP funds or the banks would have backed away. If that was true, why were those same big banks desperately sucking up hundreds of billions from the Fed month after month even after they took the TARP funds? The Mainstreet Bank folks -being from Missouri- have to be saying, “Show Me.”

Our Banking Problem

Last week (02.23.12) Bank of America kissed off Fannie Mae saying it would no longer sell mortgages to the (closet taxpayer backed) mortgage buyer. Published reports say the break is over some of the crappy mortgages BofA sold Fannie in the past. Mortgages, Fannie thinks BofA knew –or should have known – were crap. Fannie apparently wants their money back. BofA says the mortgages went south because of the recession, so Fannie (we the taxpayers) should eat them.

Like a lot of bad things this looks back to 2008. BofA bought subprime mortgage lender Countrywide Financial as it was about to go belly up. BofA says the Feds “made us” buy it; some think BofA thought it was getting a real steal. In any case, BofA is down +/- $30 billion on the deal so far. The once biggest dude in the world of banking has been on a diet slimming down, dumping anything it can and backing away from the mortgage business, whilst dodging its responsibilities and sticking the taxpayers with its problems at every opportunity. Case in point: last August, when BofA ran their manure spreader through Fannie they picked up a half billion dollars of our money.

It’s sickening when you consider how much (+/- $45 billion in TARP) we gave BofA to forestall their potential collapse. Not to mention BofA’s use of the Federal Reserve “Discount Window” where the Fed passes under-the-radar loans to the banks. Late in 2008 as BofA was attempting to take over Merrill Lynch, between them the two entities were living on about $80 billion in the Fed’s stealth loans.

All the while, regular folks, many of whom had been -through their naivety- lured into home loans they could not possibly hope to pay, were getting no help from the banks. Instead of using TARP and the other taxpayer bucks to help little folks they had set up to fail, the banks went back to gambling with more of the shaky financial products like derivatives that got us into this mess.

How big a deal is BofA’s decision to stop selling loans to Fannie Mae? It’s pretty big if you think it’s the people’s job to make sure that these too-big-to-fail banks don’t fail. BofA says it’s no big deal, they can sell off their mortgages to Freddie Mac and Ginnie Mae. These two agencies complete the triumvirate of federal agencies created to help make the American Dream –home ownership- come to be. Like Fannie Mae, Freddie Mac is a publically owned company and is “wink, wink” not backed by the taxpayers. Ginnie Mae was spun off from Fannie and is the only openly taxpayer backed entity of the three.

It’s past time to stop the reckless gambling, to break up these ethically challenged too-big-to-fail behemoths, and get the resultant smaller banks refocused on the reason for their existence, to provide the funds to keep our economy moving. If we could get the banking sector resized and refocused, the two Maes and a Mac might be good for us; right now they are just good for the banks.

A Glimmer Of Justice

Last week (2.9), we finally got a deal for a few big banks to make a $25 billion down payment on what they owe America. You’ll recall that less than a decade after they conned Congress into dumping the Glass-Steagall Act passed in 1932 to protect Americans from reckless bankers, reckless bankers drove most of the world off a cliff. A cliff created through their relentless efforts to profit from packages of securitized mortgages. They lured naïve folks into mortgages the bankers and their cronies knew they couldn’t afford. When the bottom fell out did the bankers use the money we gave them 2008 to help those they had enticed?

Nope, but the alarm bells were set off by Hank Paulsen, plucked by George Bush from his post as CEO of Goldman Sachs –perhaps the most reckless and devious nest of bankers on the planet– to become Secretary of the Treasury. The Congress passed the $700 Billion TARP Act (largely crafted by Paulson) to save the banks. At the same time – unbeknownst to most of us until earlier this year– the Federal Reserve poured about ten times that much into the banks, interest free. The $25 billion –chump change for these banks– will help a few of the millions who owe more on their mortgages than their homes are worth. Others, pushed out of their homes erroneously may get a few bucks.

The deal, in the works forever, was held up by two State Attorneys General who refused to sign because the banks got protection against future prosecution. California AG Kamala Harris and New York’s Eric Schneiderman booted the get-out-of-jail-free-cards. Housing Secretary Shaun Donovan brokered the deal over Super Bowl week and last Friday (2.10) announced that 49 states, the Justice Department, and other Federal entities had signed onto the deal. Ally Financial (formerly GMAC), Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, the biggest mortgage servicers, are coming up with the$25 billion.

It better be a down payment; the bankers received hundreds of billions from the American taxpayers. Up to now they have used our money mostly to return to the reckless risks that got us into this mess in the first place. An outcome Mr. Paulson could have forestalled, had there been any real conditions attached to the bailout bucks. But why would he? Could it be because Paulson had his hand on the tiller at Goldman while they were raking in billions selling crap (their term), all-the-while betting against their customers with the idiots at AIG? The same AIG we bailed out only to have Goldman suck up a ton of that bailout, collecting on the sure losers they hung on AIG.

Before sundown the day the $25 billion deal went public Schneiderman sued three big banks: Bank of America, JP Morgan Chase, and Wells Fargo, along with the MERS system. The banks set up and control MERS cloaking the foreclosure world. The banking entities and some of the individuals involved left the ethical line far behind in this display of unbridled greed.

Just in Time for Christmas

As day after day of misery goes by in the lives of the little folks crushed by the financial crisis, one question lies in the back of their minds. Who did this to us? Who’s looking for them and when will they be punished? We have known the answer to the first question for some time. The Wall Street investment banks’ sophisticated (read Crappy) investment packages whipped up a perfect storm.

They sold this Crap (their term not ours) to people who should have known better based largely on stellar ratings from the agencies charged with vetting these investments. The ratings agencies were pushed by their customers (big banks)  and did not look – as hard as they should – at the packages.

And it turns out that the bailout bucks we knew about (TARP) were nothing when compared to the zero interest loans the Federal Reserve was handing out to keep the banks afloat, trillions in secret loans. Bloomberg Markets Magazine blew the lid off this program. It was ten times the size of TARP.  By far the biggest hunk of these bucks (63% of the daily average) went to the same gang that got us into this mess – six humongous banks.

How did these half-dozen too-big-to-fail banks position themselves to come out of any crisis they might create covered in gold? Over a couple of decades they conned Congress into repealing the laws designed to prevent things like the 2008 crash. They even got “The Fools on the Hill” (AKA the Congress) to exempt banks from State Lottery laws. Who helped this along?  Clinton’s Secretary of the Treasury, Robert Rubin, fresh from 26 years and the top job at Goldman Sachs.

When the house of cards collapsed, who came up with the plan to save the banks? Bush Secretary of the Treasury Hank Paulson, fresh from the top job at Goldman Sachs, led the charge to save his comrades.  It gets even better; in 2006 Goldman Sachs was able to foresee that the crap was really crappy and likely to crash. Did they sound the alarm? Of course not, that might have interfered with their efforts to sell crap to their customers. Instead they bet it would crash and reaped a huge profit.

What ties this all together? Two of the key players, Rubin and Paulson, both came from Goldman at just the right moment to get rid of the pesky banking laws. So in addition to the efforts of all the banking lobbyists, you might say it was an “Inside Job.”

However, our wait to make those responsible pay may be nearly over. The SEC has charged six former Fanny Mae and Freddy Mac executives. More important, New York State Attorney General Eric Schneiderman and other State AGs are looking at criminal and civil charges. It would be nice to see a few of the arrogant bankers on their way to jail?  When you think about it, what they did was harmful than Bernie Madoff’’s scams. “Pants-on-Fire” Goldman CEO, Lloyd Blankfein has another view; bankers, he says, are “doing God’s work.”