An Insider's View on Bank Bailouts

Warning: Non-environmental, but interesting nevertheless, material contained herein:

I have a few friends who could be considered 'bank executives', or at the very least, among the ranks of banking employees who mingle with high level bank executives.  Being the well-trained journalist I am,* I decided to ask some of these friends/insiders to give me their reaction to the bank bailouts and the resulting public and media reactions.  If things go well, this might be a series of posts.  If not, consider this a one-time diversion.

The first insider willing to give me some feedback is a long-time friend who works in an executive-level support position of a major U.S. bank.  In other words, he's not a banker, but he gets to play with bankers all day.  Because bank executives are not afforded the luxury of tenure or the freedom to spout off whenever and on whatever they please without fear of reprise, this insider will remain anonymous. 

Here was my initial inquiry to NotSoDeepThroat**:

Hey, I was talking with a friend over the weekend about TARP*** funds and the recent backlash against executive bonuses.  He's an exec at [unnamed bank] and one of those who would be subject to the 90% bonus tax if passed.  I thought it might be interesting to do a series of posts on 'Insiders' Reactions to the Banking Situation and Government Bailouts' or something like that. I'm wondering if you'd be willing to write a couple of non-technical paragraphs from an insider's perspective.

NotSoDeepThroat agreed and here are his thoughts--comments welcome below:

I am hoping that people are smarter than the media gives them credit for, but based on some recent comments from various friends, I’m beginning to worry that all this demonizing of banks is taking hold in peoples’ minds. As an employee at a big bank that accepted TARP funds, it’s beginning to get old. I think there are a few misperceptions floating around out there that the media isn’t exactly helping to overcome, such as:

 

Banks aren’t lending money

My big bank loaned more in Q408 than Q308, and more than that in Q109 (and more year over year!). So did lots of other big banks. I didn’t read that in the papers.

Banks should be loaning the TARP funds  

Banks loan deposits, not capital. TARP went to capital, and banks were virtually forced to take it.  To not take it was a sign of weakness, and would almost guarantee failure of the government’s stress test.

Bankers caused this mess  

I’m sure some bankers did help cause this mess. But most of them are gone now. And I don’t know any of them.  It may also be helpful to note that not everyone who works for a bank is a “banker.” There are those of us who don’t really know that much about banking; we contribute in support areas, and we’re working as hard as we’ve ever worked – as are our folks on the front lines.

Banks should stop spending money on frivolous things

True. No company, especially public companies, should spend money on frivolous things.  But let’s not confuse frivolity with investments that are designed to—and historically have—generate income… including (yes) sponsorships and (yes) incentive trips for high producers. 

Bottom line on all this: let’s target the problem and not the industry. If banks loaned money to people with the same strings as the TARP funding – at least in the public’s eye – no one would bother.

*Full Disclosure: I have no journalistic training whatsoever in case you've been lead to believe otherwise by my amazing writing skills.

**Not his real name.

***TARP=Troubled Asset Relief Program--AKA the Bank Bailout.  Note, this is to be distinguished from the Economic Stimulus/Recovery package.  As Wikipedia puts it: "The Troubled Asset Relief Program (TARP) is a program of the United States government to purchase assets and equity from financial institutions in order to strengthen its financial sector. It is the largest component of the government's measures in 2008 to address the subprime mortgage crisis."