Where Oh Where is the RTC?
This is no suprise to anyone in business. Small businesses (and big businesses) need customers. Customers come from consumer confidence. Consumer confidence comes from employment (i.e. positive cash flow which allows businesses to create jobs). Employment comes from the free flow of money in the economy.
But here's something that until recently many people didn't think about: Banks control the money supply in the economy. The Government can pump money into banks through low interest rates and programs like TARP but if banks can't or won't lend, then money doesn't flow in the economy. Thus creating the vicious cycle we see now.
Okay, I know....that's pretty elementary. But here's the question I'd like to get an answer for: Can someone tell me why we haven't considered reopening the Resolution Trust Corp that resolved the problems during the S & L Crisis just a few years ago???
Banks would be able to lend and thus "jump start" the economy. Why don't our elected leaders remember the Savings & Loan crisis and learn from it?
In September 2008, Paul Volcker, Nicholas Brady and Eugene Ludwig wrote a Wall Street Journal article about this. Mr. Brady was U.S. Treasury secretary from 1988-1993. Mr. Ludwig was U.S. comptroller of the currency from 1993 to 1998. Mr. Volcker was chairman of the Federal Reserve from 1979-1987. Everything they predicted there has come to pass. You can see the article here: Resurrect the Resolution Trust Corporation
Remember the Resolution Trust Corp? This was the entity set up by the government to handle the "bad assets" from the S & L's in the country. Because the "bad loans" were removed from the existing bank's balance sheet, that bank could recover ...depending upon the rest of its financial strength.
Now there were S & L failures because of how deep their problems ran. But overall, we recovered from that crisis faster because bad assets were corralled and worked out by experienced lenders in conjuntion with private partnerships that purchased the assets. And (even though I'm not a big fan of job creation by the government) jobs were created at the government's "bad asset bank" by hiring experienced bankers to "work out" the bad loans with the borrowers.
Eventually all the of "bad loans" were handled - either paid off, properties foreclosed and projects completed. So......why are we keeping "bad assets" on bank balance sheets now? Who's benefiting from this???
Banks can't loan money (even with SBA guarantees) if their "bad asset to capital ratio" is too high. The regulators won't let them. Check out this website to see how your bank's bad asset to capital ratio looks. Banktracker
Hint: in the "old days" (pre-crisis) having non-performing (i.e. "Bad") assets of 3% was a bad thing for a bank. Now, if your bank has less than 100% of non-performing assets to capital ratio, the doors are still open. Why? Probably because the FDIC can't afford to close them. Think of the panic. Think of the cost to us.
Many community banks are in the 50 to 70% bad asset to capital ratio range - meaning that 50 to 70% of their loans (as compared to the bank's capital) are past due, non-performing or ready for foreclosure. This is similar to a consumer having credit card debt equal to or greater than the value of all of her assets including her home. Many banks are technically "bankrupt" and we keep hoping for a better day. But contrary to popular belief: "Hope is NOT a strategy". Having a good plan and implementing it is the only way out of this crisis.
I know when we don't understand history, we are doomed to repeat it. Get the book(s) "The Bankers", by author Martin Mayer. He wrote two books by this name. The first one in 1974 and the other in 1998. (they are available through Amazon). Read them. Then consider what must be done now.
Then let me know what you think.
But here's something that until recently many people didn't think about: Banks control the money supply in the economy. The Government can pump money into banks through low interest rates and programs like TARP but if banks can't or won't lend, then money doesn't flow in the economy. Thus creating the vicious cycle we see now.
Okay, I know....that's pretty elementary. But here's the question I'd like to get an answer for: Can someone tell me why we haven't considered reopening the Resolution Trust Corp that resolved the problems during the S & L Crisis just a few years ago???
Banks would be able to lend and thus "jump start" the economy. Why don't our elected leaders remember the Savings & Loan crisis and learn from it?
In September 2008, Paul Volcker, Nicholas Brady and Eugene Ludwig wrote a Wall Street Journal article about this. Mr. Brady was U.S. Treasury secretary from 1988-1993. Mr. Ludwig was U.S. comptroller of the currency from 1993 to 1998. Mr. Volcker was chairman of the Federal Reserve from 1979-1987. Everything they predicted there has come to pass. You can see the article here: Resurrect the Resolution Trust Corporation
Remember the Resolution Trust Corp? This was the entity set up by the government to handle the "bad assets" from the S & L's in the country. Because the "bad loans" were removed from the existing bank's balance sheet, that bank could recover ...depending upon the rest of its financial strength.
Now there were S & L failures because of how deep their problems ran. But overall, we recovered from that crisis faster because bad assets were corralled and worked out by experienced lenders in conjuntion with private partnerships that purchased the assets. And (even though I'm not a big fan of job creation by the government) jobs were created at the government's "bad asset bank" by hiring experienced bankers to "work out" the bad loans with the borrowers.
Eventually all the of "bad loans" were handled - either paid off, properties foreclosed and projects completed. So......why are we keeping "bad assets" on bank balance sheets now? Who's benefiting from this???
Banks can't loan money (even with SBA guarantees) if their "bad asset to capital ratio" is too high. The regulators won't let them. Check out this website to see how your bank's bad asset to capital ratio looks. Banktracker
Hint: in the "old days" (pre-crisis) having non-performing (i.e. "Bad") assets of 3% was a bad thing for a bank. Now, if your bank has less than 100% of non-performing assets to capital ratio, the doors are still open. Why? Probably because the FDIC can't afford to close them. Think of the panic. Think of the cost to us.
Many community banks are in the 50 to 70% bad asset to capital ratio range - meaning that 50 to 70% of their loans (as compared to the bank's capital) are past due, non-performing or ready for foreclosure. This is similar to a consumer having credit card debt equal to or greater than the value of all of her assets including her home. Many banks are technically "bankrupt" and we keep hoping for a better day. But contrary to popular belief: "Hope is NOT a strategy". Having a good plan and implementing it is the only way out of this crisis.
I know when we don't understand history, we are doomed to repeat it. Get the book(s) "The Bankers", by author Martin Mayer. He wrote two books by this name. The first one in 1974 and the other in 1998. (they are available through Amazon). Read them. Then consider what must be done now.
Then let me know what you think.
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