Posted on 05/16/2009 5:14:56 AM PDT by Son House
However, at Maryland-based First United Corp.'s annual meeting of shareholders yesterday, one banker spent a considerable amount of time trying to set the record straight about who's responsible for the nation's economic woes, and -- more to the point -- who's not. (A slideshow of the presentation may be found here in a filing with the Securities and Exchange Commission.)
For those keeping track, the government gave First United a $30 million infusion of capital on Jan. 30. The bank got the money through the Treasury Department's Capital Purchase Program -- part of TARP -- in exchange for 30,000 shares of preferred stock.
Bill Grant, First United's chairman and chief executive, said in his presentation, "It is important to note that much of this situation was caused by non-bank lenders, such as Countrywide. For the most part, it was not the 8,400 community banks throughout the USA."
Grant then took another swipe at the outside forces that he said exacerbated the problems (slide 38): "I want to clearly emphasize again that much of the cause of the severity of this recession happened far away from most towns and cities of the country, and one needs to look to Wall Street and Washington for the reasons this one has been so tough."
Grant complained that there had been a "tremendous amount of misinformation" about both TARP and the Capital Purchase Program (CPP).
The banks were not at the table when the programs were developed, he said. And moreover, "the CPP program was only to be made available to strong banks." Grant said that while the big banks that got the first wave of government aid were told that they would have to accept, banks like his were "encouraged" to take it. He then said:
"Well, it's strange how politics affects the message. Now banks across the country are vilified for having a government 'bailout.' What is lost in the news is not only the original message, but the fact that CPP must be paid back - with interest.
Not only will the Treasury get its money back, but it is going to earn 5 percent on its investment. Most projections indicate the government will make a $40-plus billion profit from CPP. And, by the way, there has not been a single default in CPP payments."
Grant exhorted the bank's shareholders to spread the word and correct the "misperception of banks" (slide 53):
"In closing, I would like to enlist your help. You, as our shareholder and owner, obviously have a stake in our future success. One of the most serious challenges we face today is the tremendous amount of misinformation spread by both the media, and Congress. At one of our recent American Bankers Association meetings, its president, Ed Yingling, challenged us to help dispel four misperceptions of banks. I would like to briefly review them, and ask that you to keep them in mind, and bring them up in your conversations with friends and neighbors.
1. Traditional Banks -- We are not the problem, we are the solution. Most of the troubles today can be traced to non-banks, and a few money center banks around Wall Street. The 8,400 community banks continue to be strong and serve their communities -- just like First United.
2. Banks are Lending -- Much has been said about banks not lending. Nothing could be further from the truth. Lending nationally increased last year -- even in the face of a recession. As noted earlier, First United increased its lendings by 8 percent in 2008.
3. Banks are not Bankrupt -- While it is true that special funding facilities have been provided a few, very large banks, over 98 percent of America's banks are well capitalized. And, yes, it is true that 20-plus banks have gone under this year, but no depositor has ever lost a dime on insured deposits.
4. CPP is not a Bailout -- As noted in my comments earlier, much has been made of the "bankers' bailout." This simply is not true. The Capital Purchase Program was born out of the Troubled Asset Relief Program and was specifically designed for strong banks. It is money that is in the form of a preferred stock investment, and must be paid back with respectable rate of interest.
While it's fair to acknowledge that some banks are trying to get it right and pay back the money as quickly as they can, hopefully bankers also understand -- given recent headlines about some recipients who've spent public funds in a lavish fashion -- why taxpayers are concerned. The public has a right to watch over its money and see what recipients are doing with it.
But on one point, we can agree: This is, after all, a loan that must be repaid."
http://www.sec.gov/Archives/edgar/data/763907/000114420409026235/v149135_ex99-2.htm
Obviously, this recession has had a tremendous impact on all of the nation’s banks, and certainly First United has not been immune from the policies which have come from the responses to this crisis.
Most notably, there has been a lot of talk about the government’s Troubled Asset Relief Program. More than the talk, however, there has been a tremendous amount of misinformation. To appreciate TARP, you have to look back to last fall when the program was created.
It was conceived by Congress, with no input from the banking industry or its trade association, The American Bankers Association. The original idea was to use the $700 billion to purchase troubled assets from banks. It soon became evident that there could be no agreement on how the price for these assets might be determined. “Plan B” emerged as the Capital Purchase Program where capital would be made available to banks in an effort to spur lending and further strengthen banks. Again, banks were not at the table when this was developed.
The law clearly stated that the CPP program was only to be made available to strong banks. To underscore this point, the six largest banks in the country were summoned to D.C., and told they would take it. From there, banks were “encouraged” by their regulators to participate with the assurance that this was for strong banks. We, too, were encouraged, and took it for the reasons noted in my Shareholders letter to you.
Slide 53: Misperceptions of Banks
In closing, I would like to enlist your help. You, as our shareholder and owner, obviously have a stake in our future success. One of the most serious challenges we face today is the tremendous amount of misinformation spread by both the media, and Congress. At one of our recent American Bankers Association meetings, its President, Ed Yingling, challenged us to help dispel 4 misperceptions of banks. I would like to briefly review them, and ask you to keep them in mind, and bring them up in your conversations with friends and neighbors.
More;
http://www.sec.gov/Archives/edgar/data/763907/000114420409026235/v149135_ex99-2.htm
Slide 49: Recession
From a national economy perspective, this is certainly the most severe recession on record. It is a recession which began in December, 2007, and became the longest recession on record as of April of this year. It is eclipsed by only the Great Depression.
The origins of this downturn seem to be traced to the housing market decline, and the incredibly complex securities market on Wall Street. Experts will spend the next few decades unraveling the reasons for this recession, but these two factors are near the top. The very rapid expansion in the housing market was prompted not only by low interest rates, but also by an environment of easy credit, and lending emanating from several large non-bank entities throughout the country.
These loans were securitized and sailed through FANNIE MAE and FREDDIE MAC. These highly rated securities found their way into investment portfolios all over the world. The ease of this process predictably lead to higher and higher housing prices throughout many regions of the country. Housing had become virtually unaffordable in several markets.
For better or worse, our markets have an ability to correct themselves, and this correction came hard and fast. Within a very short time, prices collapsed, and borrowers, who may not have truly qualified for the loans, found themselves in a difficult way.
The economy was still growing in December 2007. If I recall correctly, we didn't have shrinkage of the economy until the third quarter of 2008 which is the traditional definition of when a recession starts (it takes 2 quarters until it is confirmed to be an actual recession). How long would past recessions have been if the same rules were applied to their starts and finishes as the new ones for this recession? Were that date and new determination method selected just to make President Bush look bad going into the 2008 election?
Bush signs stimulus package into law
http://www.msnbc.msn.com/id/23143814/
Feb. 13, 2008
WASHINGTON - President Bush on Wednesday signed a multibillion-dollar economic rescue package on Wednesday that means $300 to $1,200 rebates for many American households.
Bush called the measure “a booster shot for our economy” to stave off a recession.
Economic analysts generally believe the $168 billion package Bush signed will help prevent the current downturn from ballooning into a crisis. But if the rebates don’t spur a consumer spending spree strong enough to cure what ails the economy, Congress is ready to throw more money at the problem.
If the author wants to say this is the longest recession since the Great Depression, then he should recalculate the start and end dates of all the other recessions according to whatever rules/whims define this one and see how that lengthens all the other ones.
September 2005 was the peak of the residential real estate market and the whole ball of twine has been unraveling ever since.
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