Fed Says High-Risk Equity Firms Can't Take Over Banks
By Susie Madrak Thursday May 07, 2009 4:30amOh, boo hoo! How dare the Fed stop him from having his way? More to the point, how dare they say "no" to a Wall St. player? (Which begs the rhetorical question: Don't these people ever learn?)
CAINSVILLE, Mo. — No one seems to want to own a business in this dusty, windswept corner of rural America, population 370, with its crumbling sidewalks and boarded-up storefronts.
Except, that is, for J. Christopher Flowers, a media-shy New York billionaire who last year bought the First National Bank of Cainesville, one of the United States’ smallest national banks.
Mr. Flowers, a private equity manager, has no particular love for rural Missouri; in fact, he has never set foot in Cainsville. Rather, he wants to use the national bank charter he picked up in this farm town to go on a nationwide buying spree.
With that charter in hand, Mr. Flowers plans to take over a handful of large struggling banks, casualties of the economic crisis. In some cases, he hopes, the federal government will help.
But Mr. Flowers, whose investments in banks overseas have made him one of the richest men in America, has run into a major obstacle in the United States: the Federal Reserve, and its very notion of what a bank should be.
The Fed does not mind if private equity firms have a minority interest in banks — the Obama administration even wants them to invest. But the Fed will not let them take control, a stance the firms are lobbying regulators mightily to change, especially given that stress test results to be released Thursday are expected to show a glaring need for capital in the banking system.
It’s not personal, Fed officials say. It’s just that as the nation recovers from one of the worst banking crises in history, the Federal Reserve wants to make sure that it does not set the stage for the next financial implosion by turning banks over to private equity firms, some of the riskiest players in the business world.
So while Mr. Flowers was able to buy the bank here with his own money, he cannot tap into the billions his firm, J. C. Flowers & Company, has raised.
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The Federal Reserve is a private firm. They are not the Gov't. They do not have a say in who can own what. This is supposed to be a free market, yet the big bankers see it another way.
ABOLISH THE FEDERAL RESERVE!
CHOOSE FREEDOM!
Its high time that the Federal Reserve (FED) be converted into a government run instrument of America's financial system. Private control of the banks has nearly put this country out of business at least twice in the last 100 years..
...........to you Ms. Madrak, now, that is what real journalism is, real reporting on a developing situation in which the worst carpetbaggers in US, are now PROFITING AGAIN with their stolen billions, and us suckers are still holding the corporated welfare bag!!
......and O-bought-ma is still making kissy with Geither/PUKIES.
for being the type of real commentary all of us crave. But you would do the progressive movement prouder if you could come up with a clever name that also insults people who were born with some form of retardation, just to show you are thorough in your analysis.
For Jebus' sake, Obama's had a hundred days to fix this and everything else!
Surely 100 days should be enough time to fix eight years of Bushista dipshittery
and thirty-odd years of Reaganomics Hoodoo Tricklenomics.
Obama is obviously in league with the Fascist Commies.
Let's impeach him!
think of a clever play on words with his name. Nobody has done that before and we will be regarded by all who behold it with the utmost
admiration and, dare we note proudly, quiet envy.
LOLOBAMA!
These asshats crashed and burned the economy and now they are whining that we won't let them loot the wreckage. They are the lineal descendants of the old school wreckers who lured ships onto reefs and rocks so that they could loot them.
http://www.capecodtravel.com/humor_lore/histo...
http://www.imdb.com/title/tt0031505/
In a time of of deceit telling the truth is a revolutionary act.
-George Orwell
America: Freedom to Fascism ~ Aaron Russo's Director's Cut
to issue credit cards on which I can place my own personal photo showing me drowing in consumer debt I think he should be allowed to move forward.
up to my eyes in water with pink bathing cap and bubbles blowing out of nostrils with a rather wild scary-eyed look as the hot water heads up past my forehead.
I think that will do.
Until I turn blue and that will be quite soon, actually.
We're going to need it.
Greenspan Admits The Federal Reserve Is Above The Law & Answers To No One
Watch him say this at around 7:40.
Repeat: Greenspan openly states that the Federal Reserve is above the law. Watch him say it starting at 7:40 in this video.
Thanks lilith. The FED reserve is definitely the biggest, but we have others.
Did you know the DMV answers to no one? It passes laws, levies fines and presumes guilt before innocence. We seem to have a knack for creating these enterprises. AIG's financial products division answered to no regulator.
The thing about the Federal Reserve is that it's a PRIVATE BANK, with no oversight, in control of taxpayer's money.
Whoever runs this monolith runs everything.
No really. Not only have the lessons of the Depression been forgotten but these billionaire investors haven't even figured out this this is precisely what caused the mess we're in now!
Some choice quotes from the article:
"They and other investors see banks as the recession’s biggest prize: potential money machines that could one day generate fabulous returns, particularly after the federal government eats the losses of failed banks, then heavily subsidizes their sale."
Brilliant. FABULOUS RETURNS are always sustainable things that won't crash and burn! And what could be better than having the taxpayers subsidize these douchebags' purchases? Nothing like having to pay for your firing squad's bullets!
"I don’t think the Republic is going to be brought to its knees if private equity owns banks, personally"
Yeah, it's not like it's happening right f-ing now!
I hope his private plane crashes into Carl Icahn's private plane and they both fall onto an AIG executive meeting.
So a billionaire goes out and buys an asset that turns out didn't have the value he thought it did when he made the agreement.
Puts him in pretty good company if you think about it. Pardon me if I don't feel sorry for him.
What is the problem with just re-instituting the regulations, including Glass-Steagul, that effectively managed financial industry for 60 years?
Why not just put them back into effect? The industry knows those rules, Congress and regulators know those rules, - why do we need Congress to set up committees etc. to try to invent new rules?
Granted, re-instituting the regulations would require financial companies to restructure and spin off brokerage divisions, banks, etc. and possibly breakup into smaller regional, independent banks (not unlike the ATT break up into 7 RBOCs).
But that is the point - these companies were deregulated and allowed to become TOO BIG to fail.
Naturally, that won't happen since it would be "way too expensive" "way too complicated" "way too inconvienent" PLUS it would "not be invented here" by the current Congress/regulators.
Go back to regulations drafted by our grandfathers? who is kidding who? Who cares if they were effective and worked to create a stable industry for 70 years? They don't allow for the "innovative financial products" like credit default swaps and Ponzi schemes - pshaw!
How is Glass-Steagall related to PE?
(Not that I disagree with your tone, just asking).
No problem with Flowers or any private equity from buying banks, as long as the regulations prevent aggressive high risk exposure.
GSA set up a regulatory firewall between commercial and investment bank activities, both of which were curbed and controlled. Banks had to decide on whether they would specialize in commercial or in investment banking. Only 10% of commercial banks' total income could stem from securities; however, an exception allowed commercial banks to underwrite government-issued bonds.
http://www.investopedia.com/articles/03/07160...
That is the relation - restore risk management regulation on banks etc.
on this matter and support the idea that investment banks be allowed to invest in and become minority shareholders in banks (with the idea of helping to recapitalize them), but that they should not be allowed to own or control banks. We are trying to stabilize the economy, not sink it again even before it has recovered.
REPEAL THE FUCKING LAW!!!!!!!!!!!!!
Agree with the Fed, not a good idea for PE to own banks. However, disagree that (how the author of the article puts it) "private equity firms, some of the riskiest players in the business world". I would like to see the statistical data to support that claim. PE can work (social costs excluded) with business and often does turnaround failing businesses (obviously that statement depends on the long-short goal).
That said, PE is not the right move for banks which are a vital component of society... especially at times such as these when people, rightfully so, want plain vanilla (sound) banking.
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