FIRST THINGS FIRST

Before I get to the very interesting question posed in response to my last post, I'd like to touch on a couple of other matters. Mervyn King, the Governor of the Bank of England spoke out in support the other day of the idea of separating the once-traditional roles of commercial and investment banks championed over here by Paul Volker. There are two and one-half firm rules in life. Never, EVER try singing a song that Frank Sinatra has sung and never speak at the same venue with Mervyn King as our poor little Miss Dopy, Shelia Bair discovered a few weeks ago. The half rule is if Gov. King says anything at all it is best to listen. More later.

On the home front The administration announced yesterday that it is prepared to allow small community banks to borrow from the TARP program in order to spur lending to small businesses. In addition, the ceiling under the Small Business Administration loan limits would be raised to %5 million from $2 million. Now I don't know the first thing about the SBA and I refuse to ask my son who is involved in Economic Development for a fairly large city in Illinois (a man must have some pride you know), but I do know that the proposed raise is the pet project of Olympia Snowe the only Republican who voted for the Baucus debacle in the Senate. Buying votes? How can one accuse a Nobelist of that! Of course any bank that does participate would be subject to the TARP rules concerning compensation and be under scrutiny as to what kind of lending it undertook. At the very same moment, the White House announced that The Leader really wasn't involved in the decision of Mr. Feinberg to limit the pay of the highest paid employees of the present TARP recipients.

Does this bunch believe they've found a new kind of stupid or what? No community bank is going to stick a finger into that ball of tar. Can't these jerks pay attention to something that might actually help small business get up off the canvas such as temporary, and in some cases, permanent tax cuts especially in the area of the payroll tax. Further, banks are not lending because THEY DON'T WANT TO TAKE ON QUESTIONABLE CREDIT IN THIS ECONOMIC ENVIRONMENT not because of the cost of funds. Further, after the abject stupidity of the pay limitations and the other means of control, no one wants to be anywhere near this mob. My son also tells me that in these hard times municipalities are looking for ways to make ends meet and the first thing that comes to mind is to raise property taxes which is death to small businesses. And this is the administration's response?

A final word on the pay czar. Does it strike anyone as being a bit absurd that the two institutions that did the most to ignite this crisis, that for years deliberately filed false accounting on their operations, who were run by what amounted to a band of crooks and that have cost the taxpayers trillions are exempt from the oversight of the pay czar although they are now under the actual control of the federal government? Yep, Fanny and Freddie are not on Mr. Feinberg's radar. I think I am correct in saying that the CEO of Fanny, appointed to this position by the congress is paid $3 million a year plus bonus. And the answer is more regulation? Pardon me while I quietly get sick from having to swallow this piece of hypocrisy.



Our old friend, Anonymous, raises a most interesting point in response to yesterday's offering. Clearly the regulators were unprepared to delink subsidiaries and especially in derivative operations at the "Parent" were undertaken in --I assume--in support of the sub if my understand of the comments is correct. My response would be well and good in the time frame of which we speak but was it not true that the market perception was that these subs would be supported and that activities were undertaken with that perception in mind? In addition, in the midst of a crisis is no time to investigate the fine points of legal standing just as in the midst of a fire one worries not if the building next door has the same owner: pour water on the damn thing and worry later about the consequences. Wouldn't the approach recommended by Messrs. Volker and King (how's that for pulling rank!) work if clearly understood from the git-go even with a form of common ownership? Again, not a rhetorical question. Another point on this matter. The subs into which a good deal of the toxic junk was dropped were hardly fully capitalized, stand alone entities. Did that enter into the decision making process r am I confusing concepts? Again, a real question. Love to have a dialog on this. Thanks for the comments.