Thursday, February 3, 2011

Served Up

On Wall Street where greed is good and you can never get enough the FDIC served up a heaping plate full to group of hedge funds led by Blackstone and the Carlyle group. The dish came at taxpayer expense in the form of a loss sharing agreement to the group for the purchase of newly reflated Bank United (BKU). The former Frankenstein Bank saw its carcass spring back to life this week as it turned a $2.6 billion shiny penny for its new owners on a successful IPO.

The fabulously successful IPO is being celebrated nauseatingly as a story of Lazarus rising from the dead and the triumph of free market capitalism, but the bank that was jolted back rather than resurrected does not live in a free market vacuum anymore than the rest of us live in a fairy tale. Despite the FDIC's generically engineered phraseology "Loss Sharing Agreement" this deal reeks precisely because of those fantastic profits and who the partners are.

The FDIC facilitated the transaction with John Kanas and a consortium of investors after BankUnited, FSB, was closed today by the Office of Thrift Supervision, which appointed the FDIC as receiver. The FDIC estimates that the cost to its Deposit Insurance Fund will be $4.9 billion. BankUnited's acquisition of all the deposits and assets of BankUnited, FSB was the "least costly" resolution for the DIF compared to alternatives.

In addition to the management team led by John Kanas, ownership includes WL Ross & Co. LLC; Carlyle Investment Management L.L.C.; Blackstone Capital Partners V L.P.; Centerbridge Capital Partners, L.P. LeFrak Organization, Inc; The Wellcome Trust; Greenaap Investments Ltd.; and East Rock Endowment Fund.

So, what happened to the supposed return to Glass-Steagall where there would be a wall erected between savings banks and investment banks? Instead of erecting that wall the FDIC pimps in the daylight for the shadow banks rigging bids for the likes of Blackstone and the Carlyle group, without even pretending to do otherwise, counting exclusively on the taxpayers blind eyes for protection. But you can bet that when and where the shadow banks meet the hedge funds they dish out the risks to the taxpayer, and divvy up the profits among themselves. The FDIC openly admits that this trend will only accelerate.

Due to the interest of private equity firms in the purchase of depository institutions in receivership, the FDIC has been evaluating the appropriate terms for such investments. In the near future, the FDIC will provide generally applicable policy guidance on eligibility and other terms and conditions for such investments to guide potential investors.

Its not enough that as the neighborhood banks are failing at the clip of 150 per year, the FDIC throws gas on the fire by serving up the profits to the black box, bid rigging hedge funds and sharing the losses with the public. Of course you are not supposed to read it that way. But if you think otherwise, then consider the agency’s stated raison d'ĂȘtre.

Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 8,305 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.

But the public should have no confidence in the nation's banking system or in the FDIC to protect it. None of the banks is sound and by its own admission its Deposit Insurance Fund (DIF) is broke, therefore it's claim that it receives no federal tax dollars is laughable. How else are they paying out the insured deposits? The very fact that so many banks are so badly broken proves that the agency cannot possibly have successfully monitored any reasonable portion of the 8000 soon to be failed banks. The case of BankUnited proves once again that the FDIC exists to serve up the great deals to the insiders and the shit to the public.

If the FDIC had any concern for the public interest it would simply shut down and allow the failed banks to fail. Without the public assistance banks would be encouraged manage their risk in such a way as to keep their doors open. Those banks which could instill confidence in the public that their investments and his savings were safe would continue to exist while the others would fail at no cost to the government. The fact that a bank was operating would be evidence of its competence and integrity and that would be real openness to public scrutiny. That would restore public confidence in the banking system and that confidence would now be well-placed.

Undoubtedly some people would lose their money when the unsound bank closed. But it would be some instead of all of us and they would lose it only once. Instead we throw $700 billion down payment into a money pit whose repayment hits every one of us in a very direct personal and tangible way coming directly from our income tax. Did you catch that? The bankers paid themselves with your money and then charge you interest on it.

Once the failed banks failed and the successful ones didn't FDIC would be revealed to be the corrupt and unnecessary institution that it is. Keeping the confidence scam alive and making deals that shouldn't be made while spreading the risks to the taxpayers and serving up the profits to the shadow banks and hedge funds.

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