Monday, October 6, 2008
S&L Redux-2008 Version
"The [Fed], unleashing its latest attempt to inject more cash into the nation's ailing banks, loosened longstanding rules that had limited the ability of buyout firms and provate investors to take big stakes in banks. It marks the latest move by the Fed to rewrite the rulebook in response to the financial crisis. ... The Fed has been crafting this policy for at least two years, and private-equity firms have been more aggressively lobbying for more lenient policies. ... The rules were designed to prevent investors from abusing their bank stakes to benefit their nonfinancial investments. ... The Fed also showed wiggle room in how it interprets an investor's conversations with management. It has generally prohibited noncontrolling investors from holding talks with a bank's chief executive or other top officials, on the theory that these investors might use the talks to sway the bank's decisions in favor of their personal interests", my emphasis, Peter Lattman & Damian Paletta at the WSJ, 23 September 2008.
Been there done that. In the early 1980s, down here in Texas, I saw real estate (RE) developers buy S&Ls. I didn't initially understand why. Then I saw the RE developers used the S&Ls as cheap financing for their other investments. Is Zimbabwe Ben so naive as to think some "Chinese Wall" or "Corporate Ethics Statement" will prevent banks giving "VIP" treatment, like Countrywide gave "Friends of Angelo", in funding LBOs and such for their owners? Get real.