Returning Bailout Money Just a SideShow

Posted by: Mara Der Hovanesian on June 09

Treasury will allow 10 of the nation’s largest banks to repay $68 billion in government bailout money. One of them, JPMorgan Chase (JPM) quickly put out a press release quoting CEO Jamie Dimon as saying the return of his $25 billion was “the right thing for our country.” Sounds encouraging…and patriotic, no?

The only problem, says Charles Ortel, managing director, Newport Value Partners, a research firm in New York City, the money is just a drop in the bucket as far as what the government has shelled out to prop up the economy—and it’s not exactly working yet. “The government has spent trillions and yes, it’s nice to get some of it back, but it’s a distraction from the main event,” says Ortel. “Private sector jobs have fallen off a cliff. The country and homeowners and the government are awash in debt. The government has the power to change the debate on any given news cycle by pointing to one or more of its ‘successes,’ but I’d feel a lot better about this …if there were better accountability.”

Ortel’s beef is that the government is not acting like a good investment manager. He sees a “headlong rush away from the principles of good investing principles.” For instance, any shrewd investor plans for an exit strategy. How, he wonders, will the government shed a $50 billion stake in GM or a $45 billion stake in Citigroup (C)? Moreover, government says it’s not going to meddle directly into the business affairs of these companies, from automotive to insurance (save for executive compensation matters, and that too is creating more chaos).

“You’ve got to have control of an investment and here they are putting money into companies where they say they don’t want control,” he continues. “That creates ambiguity, waste, conflict and heartache. There’s no accountability, no alignment of management, no incentives.” Ortel says an independent business commission should be formed to evaluate the government’s actions in trying to resuscitate the economy and prop up failing businesses.

He’s not alone in thinking that the return of bailout money is just a pubic relations sideshow. Joshua Siegel of New York's Stone Castle Partners--which specializes in bank investments, with $3.1 billion under management--says it might be prudent for some banks to return the money, but he too sees the early pay-backs as a game of “perception creating business reality.”

“Banking is all perception,” he says. “It’s the ultimate confidence business. The question isn’t whether banks have enough capital to pay it back. The question is do they need government money and can they replace it with private money.”

That would be better news. As wrong-headed and greedy as a lot of money managers and market players have been in recent years, they're a far might better at running business than politicians.

Reader Comments

invester

June 9, 2009 03:51 PM

Return TARPS money so these Executive can get the excessive paid. There should be a law to protect invester if these executive run the bank to the groud again ..like Prison time.

junior mint

June 9, 2009 06:34 PM

repay paltry sums so execs can get back to the trough. business as usual

Andy

June 9, 2009 07:04 PM

Bring back debtors prison...hang on, the entire USA would be locked up by China!
Might happen anyway.

Karl

June 9, 2009 07:35 PM

Invester, You should go to Ripoffreport.com and type in- BANK OF AMERICA, and read over some of the recent Rip Off Reports. Then type in- WELLS FARGO, and read them. You can also type in- CITIGROUP, and read those Rip Off Reports too. There's actually a Rip Off Report regarding "secret life insurance policies" that were allegedly being taken out on the lives of former & current employees at many of the banks, including Bear Stearns, without the employees knowledge! You can 'Google' this- RIP OFF REPORT BANK OF AMERICA JP MORGAN CHASE BEAR STEARNS, and that Report should come up. A Texas law firm is now involved in finding out about this national scheme by the many banks cited in that lawsuit. Go 'Google' it, & read it! Have a nice day.

Bill

June 9, 2009 10:08 PM

The real subsidy is for investment banks and others to borrow at the Fed window, and for the Fed to underwrite their debts. And, of course, if interest rates are held artificially low for savers, then it is also true they are subsidizing a lending business as well. But, to say that returning money is a signal of solvency is to miss the point that these are incredibly opaque institutions--such that we have to run stress tests to see if they are solvent, knowing full well that investors lack sufficient information to tell if they are solvent or if they are capable of withstanding a challenge. Put it this way: do we need to run secret stress tests on Fortune 500 companies (ex financials)--no, because most businesses are transparent--but, not banks or GE.

Czar

June 9, 2009 10:10 PM

None of you have a clue what you're talking about. I think the one guy talking about life insurance was referring to BOLI, but he has no idea what it is. Be glad the govt. doesn't own any of these banks. Instead of a crooked banker the money would be in the hands of a crooked union mobster. At least the banker gives to charity.

Chuck Gaffney

June 9, 2009 11:51 PM

No surprise Chase is quick to try to prop up their name. If it wasn't illegal, they'd take your first born if you didn't adhere to their high CC rates and lack of service.

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