Let’s see if I understand this. The banks and investment houses violate Federal Regulation H which governs safety and soundness in real estate lending. Over a period of ten years, they issue trillions of dollars in sub-prime loans. Then they sell these loans to Fannie Mae and Freddie Mac, and in the process, make a huge profit and basically absolve themselves of all risk associated with these loans. Then, because there is an implied guarantee by our government on these Mortgage Backed Securities, they buy them back from Fannie Mae and Freddie Mac to hold in their capital accounts.
When the entire thing starts to unravel, the government steps in and stands behind the implied guarantee bolstering the world’s confidence in our markets. Had they not done this, every bank, even the best of them, would have been insolvent.
When more needs to be done, our government commits our tax dollars and those of our future generations to bolstering these financial companies by providing TARP money, in exchange for preferred shares in these companies. These two moves, revitalize the financial markets and perhaps we should see some return on our investment in the future.
However, the government foolishly fails to put reasonable restrictions and implicit directions on how TARP funds can be used. Some of the greedier companies fail to do their part by controlling reasonable costs such as executive compensation and dividend payments. Our government steps in to protect our investment and changes the terms of the TARP contract, adding these restrictions.
The financial companies cry foul play. Well surprise, you greedy bums. Take a look at Federal Circuits, 4Cir. (November 02, 1992) Docket number 91-2647, 91-2708 which can be found here: http://vlex.com/vid/charter-thrift-supervision-own-37480633
Now pay special attention, my friends, to Section III – B. If my interpretation is correct, a sovereign (that would be the US Government) can nullify a contract by change in legislation. Basically that makes no government contract binding to any other parties. The power lies in OUR hands.
Smacks similar to those wonderful contracts that banks put out to consumer and small business credit card holders in which, BANKS get to change the rules at any time. I love old adages, like this one: What goes around, comes around.
To our leaders, let’s let our bet ride for a little while longer and see if we can get a return on our investment. Why let the financial industries have our money when they are failing and then take it back when their new-found profitability comes from our investment.
Can you ever imagine a scenario in which an investment banker makes a loan to a company in exchange for stock and then simply allows that company to pay back the loan when the company starts to perform well, giving up all upside potential on their investment? It’s laughable!!!!!