Thursday, February 5, 2009

Connecting Dots

Somtimes it's interesting to back up with a wider view and connect some dots.

Here's an interesting couple dots to connect in reverse chronological order:

* February, 2009 - Wells Fargo cancels trip due to congressional (and resulting media and public) outrage on its cost and the fact that they took $25B in TARP money.

* October, 2008 - Wells Fargo forced to take $25B in TARP money

Interesting dynamic if you read that back in chronological order.

The first article, about their cancelled Vegas junket, also points this out:

Wells Fargo has bolstered lending as its top competitors scaled back. The company added $9.7 billion in loans in the fourth quarter, compared with a combined $86.4 billion decline at JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. Wells Fargo said last week that it doesn’t need additional government capital after Citigroup and Bank of America required a second round of bailout funds.

It was interesting, back in October 2008 - if Wells Fargo was forced by Paulson to take the money when they didn't really want to, was it cover for the government not wanting to appear to be picking out specific companies as problems?

Apparently when they did the auto company bailout in December 2008 they felt they didn't need such political cover anymore to hide favoritism to specific companies (even though a job saved in Detroit is probably a job lost in Appalachia working for Toyota).

In my opinion the rational economic analysis of what to do about the "big 3" car companies seemed to be to do a structured bankruptcy - whereby the survivable parts of the businesses go on.

I've wondered why such a structured bankruptcy shouldn't apply to the big banks that got themselves into trouble with loose lending.

Just like Toyota (who run their business better than GM) shouldn't have to take a hit because GM is propped up by the US government - the regional banks, who ran their businesses better than the big guys during the bubble, shouldn't have to take a hit because the big banks are propped up by the US government.

Wouldn't it make sense for the well-run regional banks to be allowed to grow and take over parts of the poorly-run big guys as part of a structured bankruptcy? This should make even more sense now that there is talk of the Fed creating a "bad bank" anyway.

No comments:

Post a Comment