Let me start out with a question.
Are you familiar with the abbreviation in the banking and brokerage industries known as TBTF? It’s simple, and it’s been the tail wagging the dog for at least six years.
Simply, TBTF is banking, Federal Reserve and U.S. Treasury jargon for too big to fail. Harking back to 2008, the federal government helped save some of the big banks, General Motors and Merrill Lynch, along with American International Group at an initial cost of $700 billion of taxpayers money.
As they “saved” the big companies, dozens of regional banks were allowed to sink, because they weren’t as “important” to the economy. One handout was done like a card trick. An enormous amount of money was given to, I think, Goldman Sachs – but it might have been AIG – which in turn spread it around European banks. We still don’t know if the Fed knew where the money was going.
Now, in many cases, the money was paid back to taxpayers when the banks or automakers had climbed out of the financial hole. It’s interesting that Ford Motor Co. was the only one of the Big Three not to take any government money. Ford did, however, mortgage everything it owned, including the paper towel dispensers. (I’m not sure of that last one!)
Just when we thought that “too big to fail” would be unnecessary in the future, it’s back. The Fed expects any bank that wishes to pay big dividends to submit to a “stress test.” Some big, well-known banks have so far failed the stress test, albeit not by much, but it brings up the subject of TBTF again.
Back to my original question: In the event of a serious recession, should the taxpayers once again bail out the big banks while letting some of the community banks sink? Or should certain big banks pay the price for their largesse to shareholders in the form of giant dividends?
In short, should they be forced to sink or undergo a forced merger, such as when the government forced Merrill Lynch into the arms of Bank of America.
Personally, I think the public airing of what we do with drones is unseemly and at one time would have been a violation of national security. I recall when I was in Vietnam 45 years ago, the use of B-52s had the nickname “arc-light.” I was told that the term arc-light was confidential and I shouldn’t use it with civilians. It turned out that the term was well-known to everyone by then.
But now the banks – and their allies in government – are demanding a stronger security wall than we had in Vietnam so that the public, and their competitors, won’t know what kind of shape they’re in. This is in spite of the fact that if another bailout is necessary it will once again be money that is ultimately from taxpayers that will fund the bailout.
And we have absolutely no say whether regional or community banks might be in need of money. Doesn’t seem right, does it?
Bud Stevenson, a stockbroker, lives in Fairfield. Reach him at Bsteven254@aol.com.