i can haz bailout?

WTF?

From the people that brought you GE Capital’s participation in the Temporary Liquidity Guarantee Program - FDIC is now insuring ‘Stored Value Cards’.

Exsqueeze me?

Yes, that would be Stored-Value-Cards  (and other non-traditional access mechanisms). According to the definition provided by the NY Fed these are:

… one of the most dynamic and fastest growing products in the financial industry. Anyone who makes purchases with a merchant gift card, places phone calls with a prepaid telephone card, or buys goods or services with a prepaid debit card is using a stored value card.

In other words, gift voucher cards, pre-paid telephone cards and any other prepaid debit cards.

More after the jump.

So what’s next - a bailout for The Donald?  For Larry Silverstein?

On CNN this morning, Joe Nocera brought up a bit of reporting he did a couple weeks ago on the $700-800 billion we’re in the process of shelling out to our banks:

It was Oct. 17, just four days after JPMorgan Chase’s chief executive, Jamie Dimon, agreed to take a $25 billion capital injection courtesy of the United States government, when a JPMorgan employee asked that question. It came toward the end of an employee-only conference call that had been largely devoted to meshing certain divisions of JPMorgan with its new acquisition, Washington Mutual.

Which, of course, it also got thanks to the federal government. Christmas came early at JPMorgan Chase.

The JPMorgan executive who was moderating the employee conference call didn’t hesitate to answer a question that was pretty politically sensitive given the events of the previous few weeks.

Given the way, that is, that Treasury Secretary Henry M. Paulson Jr. had decided to use the first installment of the $700 billion bailout money to recapitalize banks instead of buying up their toxic securities, which he had then sold to Congress and the American people as the best and fastest way to get the banks to start making loans again, and help prevent this recession from getting much, much worse.

In point of fact, the dirty little secret of the banking industry is that it has no intention of using the money to make new loans. But this executive was the first insider who’s been indiscreet enough to say it within earshot of a journalist.

(He didn’t mean to, of course, but I obtained the call-in number and listened to a recording.)

“Twenty-five billion dollars is obviously going to help the folks who are struggling more than Chase,” he began. “What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.”

Read that answer as many times as you want — you are not going to find a single word in there about making loans to help the American economy. On the contrary: at another point in the conference call, the same executive (who I’m not naming because he didn’t know I would be listening in) explained that “loan dollars are down significantly.” He added, “We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side.” In other words JPMorgan has no intention of turning on the lending spigot.

It is starting to appear as if one of Treasury’s key rationales for the recapitalization program — namely, that it will cause banks to start lending again — is a fig leaf, Treasury’s version of the weapons of mass destruction.

In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation. As Mark Landler reported in The New York Times earlier this week, “the government wants not only to stabilize the industry, but also to reshape it.” Now they tell us.

Indeed, Mr. Landler’s story noted that Treasury would even funnel some of the bailout money to help banks buy other banks. And, in an almost unnoticed move, it recently put in place a new tax break, worth billions to the banking industry, that has only one purpose: to encourage bank mergers. As a tax expert, Robert Willens, put it: “It couldn’t be clearer if they had taken out an ad.”

Friday delivered the first piece of evidence that this is, indeed, the plan. PNC announced that it was purchasing National City, an acquisition that will be greatly aided by the new tax break, which will allow it to immediately deduct any losses on National City’s books.

As part of the deal, it is also tapping the bailout fund for $7.7 billion, giving the government preferred stock in return. At least some of that $7.7 billion would have gone to NatCity if the government had deemed it worth saving. In other words, the government is giving PNC money that might otherwise have gone to NatCity as a reward for taking over NatCity.

I don’t know about you, but I’m starting to feel as if we’ve been sold a bill of goods.

So, my gentle snowflakes, in typical Bush administration fashion, corporations are going to be asked to do the right thing instead of forced to do the right thing.  And we all know how that worked out.

Comments

[mandt]

Now what? The pea is under which shell?

[Nait Deth]

It was about 3 in the morning. I listen to BBC as I sleep (I find the sound of british voices soothe me). I woke to hear Paulson explaining how he decided to use my money for whatever the hell he wanted. I was already really upset with this bailout, but the smugness and the callousness of his explaining that 'he has nothing to apologize for'. It made me rage against the Gods. I didn't get another wink of sleep that night and stayed in a rageful mood all day.

Just thought I'd share. I hate them, I hate them so much.

-Nait

[Agi]

To quote Walter Sobchak..."Has the whole world gone crazy? Am I the only one around here who gives a shit about the rules?"

[iroDAviewroff]

Огромное человеческое спасибочки !

[Grace Nearing]

(1) In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation.

Which is why it was so thoughtful (if not a tad quasi-illegal) of the Treasury Department to unilaterally arrange for whopping tax deductions to banks who acquire other banks.

(2) Might as well as cover the stored value cards under the bailout plan. Saves everybody the time and expense of class action lawsuits.

(3) Agi: Perfect Sobchak quote. Walter may have been impetuous and a bit verbose at times, but the guy was always thinking.

[actor212]

Which is why it was so thoughtful (if not a tad quasi-illegal) of the Treasury Department to unilaterally arrange for whopping tax deductions to banks who acquire other banks.

Actually, it's the Fed's job to do precisely this, by statute. This was created back in the Great Depression in order to stave off bank runs. Remember Bear Stearns?

While the power is good, it can, as seen here, be used for the wrong purposes. No one was running on WaMu (or any other bank, for that matter). It's not likely, had the Treasury stuck to the original intent of the bailout, anyone would have had to, and Morgan could have used its own money.

[Grace Nearing]

Actor212: I'm not sure if we're talking about the same tax breaks. I'm referring to this recent bit of tweaking.