Showing posts with label TARP. Show all posts
Showing posts with label TARP. Show all posts

Wednesday, April 22, 2009

What happened. What now.

Commercial and investment banks used their size and money to make campaign contributions that allowed them to evade any meaningful effort to impose common sense and transparent risk controls in the public interest, known as regulation. One of the first regulations attacked dated from the Great Depression. This was the Glass-Steagall Banking Act, a law designed to separate commercial and industrial banking. Banks, commercial and industrial (the latter known as investment banks) could now combine operations to create products in fundamentally unstable ways.

Markets are ruled by two emotions: fear and greed, and these institutions got greedy, very greedy. They created financial products that served no real purpose, other than to generate profit for the bank. To keep customers (their only regulator) from understanding the bank’s true intent, they made these products horribly complicated. These products were, in part, simple bets. These bets were layered on top of each other until only the product designers had any hope of realistically estimating what little value actually existed in the products.

Commercial and investment banks came to act as if they understood that giving these products a veneer of social utility would help them hide their true motivation, so they tied a small fraction of these bets, now known as “derivatives,” to subprime lending and passed the bundle off as the invisible hand of the free market at work.

How Does This Impact Blacks

Financially, Blacks are worse off now than they were, on average, ten years ago. Subprime lending products allowed white banks to engage in highly negative and discriminatory practices. Such practices “intentionally assigned black customers subprime mortgages while giving whites better rates.” This leads to higher mortgage loan payments for black versus white borrowers. Given this reality, efforts by media outlets to blame the crisis on minority borrowers reveals a stunning level of racism. This negative campaign further fuels race-based resentment that will grow, as the economy continues to weaken, to a very dangerous level.

What to do now

We need to replace the elites that controlled the financial marketplace, both firms and people. This means a blanket prohibition covering the firms that created the crisis, and includes anyone working in a operational or senior level at any failed GSE, bank, insurance company or investment bank/brokerage house.

Tuesday, March 10, 2009

Shareholder Approval of Executive Compensation

Congress passed, on Feb. 13, 2009, HR 1, the ‘‘American Recovery and Reinvestment Act of 2009’’. Section 7001 of the legislation states that:

“(e) SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION.—

(1) ANNUAL SHAREHOLDER APPROVAL OF EXECUTIVE COMPENSATION.—

Any proxy or consent or authorization for an annual or other meeting of the shareholders of any TARP recipient during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding shall permit a separate shareholder vote to approve the compensation of executives, as disclosed pursuant to the compensation disclosure rules of the Commission (which disclosure shall include the compensation discussion and analysis, the compensation tables, and any related material).

(2) NONBINDING VOTE.—A shareholder vote described in paragraph (1) shall not be binding on the board of directors of a TARP recipient, and may not be construed as overruling a decision by such board, nor to create or imply any additional fiduciary duty by such board, nor shall such vote be construed to restrict or limit the ability of shareholders to make proposals for inclusion in proxy materials related to executive compensation.”

Tuesday, February 3, 2009

Minority Banks Recieving TARP Funding - Update

According to the US Treasury, "Among the most recent banks to receive Treasury funding was Legacy Bancorp of Milwaukee, Wisconsin, a CDFI founded by African-American women and one of the fastest growing community banks in the nation. CDFIs such as Legacy provide vital credit and financial services to low-income areas that are often unavailable from commercial banks." Our list of minority banks getting TARP Capital now includes:

Asian $936
Cathay General Bancorp $258
Center Financial Corp $55
East West Bancorp Inc $306
Pacific City Financial Corp. $16
Saigon National $2
UCBH Holdings Inc $299

Black $45
Broadway Financial Corp. $9
Carver Bancorp, Inc $19
OneUnited Bank $12
Legacy Bancorp, Inc. $5

Hispanic $1,551
First Bancorp $400
International Bancshares Corp $216
Popular Inc $935

Grand Total $2,532 billion
Funding to all banks $195,330 billion
as of 2/3/09

To date, no native American or Women-owned banks have received TARP Funding.

Friday, January 23, 2009

TARP Capital to Minority Banks (Update)

Asian Banks $936 (0.48%)
Cathay General Bancorp $258
Center Financial Corp $55
East West Bancorp Inc $306
Pacific City Financial Corp. $16
Saigon National $2
UCBH Holdings Inc $299

Black Banks $40 (0.02%)
Broadway Financial Corp. $9
Carver Bancorp, Inc $19
OneUnited Bank $12

Hispanic Banks $1,551 (0.80%)
First Bancorp $400
International Bancshares Corp $216
Popular Inc $935

Grand Total $2,527 (1.30%)
Total to all banks $193,793

Amounts in millions US $
Percentage of total to all banks in parentheses
As of 1/23/09

Wednesday, December 10, 2008

Minority Banks Receiving TARP Capital - Update

We have updated our listing of minority banks receiving TARP funding:

11/14/2008
UCBH Holdings, Inc. (Asian)
San Francisco CA
Purchase
Preferred Stock w/Warrants
$298,737,000
Par

11/14/2008
Broadway Financial Corporation (Black)
Los Angeles CA
Purchase
Preferred Stock w/Warrants
$9,000,000 Par

12/5/2008
East West Bancorp (Asian)
Pasadena CA
Purchase
Preferred Stock w/Warrants
$306,546,000 Par

12/5/2008
Cathay General Bancorp (Asian)
Los Angeles CA
Purchase
Preferred Stock w/Warrants
$258,000,000
Par

12/5/2008
Popular, Inc. (Hispanic)
San Juan PR
Purchase
Preferred Stock w/Warrants
$935,000,000
Par

Total to minority banks: $ 1,807,283,000
Total to all banks: $165,306,798,000
Percentage: 1%

Thursday, November 20, 2008

TARP Oversight Hearing 11/18 (Tian Weng)

The Bush administration last week announced its plan to abandon the original $700 billion economic rescue plan (Troubled Asset Relief Program (TARP)) and launched a new initiative to inject $250 billion directly into financial institutions. This is to be accomplished by buying bank stock. The thinking is that this will help thaw frozen credit markets and get skittish banks lending again.

On Tuesday November 18th, Members of Congress held a hearing titled “Oversight of Implementation of the Emergency Economic Stabilization Act of 2008 and of Government Lending and Insurance Facilities” in 2128 Rayburn House Office Building. Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair testified before the House Financial Services Committee. Our overall opinion: the hearing led to plenty of blame being passed around concerning this unanticipated policy shift.

In his statement, Treasury Secretary Paulson defended his decision to change the focus of the bailout plan. He told the panel that Treasury assessed how best to use the TARP funds thru this period. "The U.S. has 'turned a corner' in averting a financial collapse, but more work needs to be done to get things back to normal", Paulson said.

Then he explained why the administration switched bailout strategy. He indicated that, given the severity and magnitude of the situation, an asset purchase program would not be effective enough, quickly enough. Therefore, Treasury decided to forgo its initial plan to buy illiquid assets from banks and other entities and instead developed a plan to inject capital directly into banks. The rationale for developing the capital injection program rests on the assumption that “by investing only a relatively modest share of TARP funds in a Federal Reserve liquidity facility, we can improve securitization in this market and have a significant impact on the availability of consumer credit.”

Many Congressmembers complained about the administration's “180 degree change in policy”. Purchasing trouble assets was the cornerstone of the financial market rescue plan and was almost the entire focus of Congressional debate in the period leading up to legislative enactment. But, as soon as Treasury received the money, it decided that giving capital to banks in return for preferred stock was a better use of the funds. This, some members felt, was obviously deceptive. Members felt that they were fooled by Treasury policy makers.

Paulson argued that Treasury couldn't pursue its initial strategy because after investing $250 billion in banks, Treasury didn't have enough left to have a meaningful impact. An emphasis on capital seems the better strategy going forward. Paulson said he believed that “more capital enables banks to take losses as they write down or sell troubled assets. And stronger capitalization is also essential to increasing lending which, although difficult to achieve during times like this, is essential to economic recovery.”

However, one of Congressman, a gentleman from Pennsylvania, expressed his disappointment that the Administration has been flip-flopping and that Treasury did not inform Congress immediately of the change. “Do we have a plan? Where are we going?” He asked. “There is no playbook for responding to turmoil we have never faced,” Mr. Paulson responded. “We adjusted our strategy to reflect the facts of a severe market crisis.”

Congressional Democrats questioned the management of the bailout program, stating "Congress gave you the authority you requested, but the economy has only gotten worse." Mr. Paulson suggested not all the news was bad. “Our system is stronger and more stable than just a few weeks ago," he said. And Mr. Paulson pointed out that the financial rescue legislation was not meant to be a panacea for all our economic difficulties. "It will take a while to get lending going and repair our financial system" he said. “This won’t happen as fast as any of us would like, but it will happen much, much faster than it would have had we not used the TARP to stabilize our system.”

(Tian Weng,
Master of Economics' 09
George Washington University)

Monday, November 17, 2008

Minority Banks participating in the U.S. government's capital purchase program

"Company: Broadway Financial Corp. (BYFC) (Black owned)
Participation: Broadway received a $9 million investment and issued warrants to buy 183,175 common shares at $7.37 each. Date of disclosure: Nov. 14. Notes: Broadway's risk-based capital ratio was 11% and its tangible capital ratio was 7.65% at Sept. 30."

"Company: East West Bancorp Inc. (EWBC) (Asian owned)
Participation: East West received preliminary approval for $316 million of additional capital Date of disclosure: Nov. 14. Notes: East West's total risk-based capital would increase to 16.20% from 13.12%, and tangible equity to tangible assets ratio would increase to 10.73% from 7.95% as of Sept. 30."
(See: http://www.creativeinvest.com/research/AsianBanks.html)

"Company: UCBH Holdings Inc. (UCBH) (Asian owned)
Participation: UCBH issued $298.7 million in preferred shares and warrants to buy up to 7.84 million common shares at an exercise price of $5.71 a share. Date of disclosure: Nov. 14. Notes: The new capital will boost UCBH's risk-based capital ratio to 15% from 12.5%. UCBH announced preliminary approval Oct. 27."
(See: http://www.creativeinvest.com/research/AsianBanks.html)

"Company: International Bancshares Corp. (IBOC) (Hispanic)
Participation: Board believes the bank would be eligible for up to $200 million under the program if it secures amendments to allow it to issue preferred stock. Date of disclosure: Oct. 28. Notes: On Oct. 27, the bank's board approved resolutions to amend bank by-laws in order to allow it to issue preferred shares and called for a special shareholder meeting to approve the move."

Note: No Native American or Women-owned banks have received an investment yet.
Source: US Treasury, Dow Jones Newswires, CNN Money