Send in the clowns

A couple of weeks ago, I was home while some microbial banditoes were running around my insides evading the border guards. Houseland security has pretty much throat-stomped most of them as of now, but on Wednesday I was not in great shape. My car was in the shop as well, so there was not much to do aside from kick it around the house for the whole day. I thought it was fortunate that certain Congressional hearings were on CNBC, so at least I'd get to watch something funny.

For those who haven't followed this story, the Financial Services committee summoned the CEOs of the eight biggest TARP recipients to appear and answer questions. Ask anyone, on either side of the aisle, and they will tell you that this was a complete show trial. These hearings were designed to allow the various illiterati on the committee to whack the executives with verbal broomsticks until some votes fell out.

One might think, at first reading, that the title of this post refers to the arrival of the eight CEOs. Over the course of the day-long testimony it became quite clear who the clowns were in that room.

All of what I am about to say comes directly from the video transcript, available here.

Clown #1: Rep. Maxine Waters (D-CA)

Waters accuses the banks of of having taken "huge amounts of money from the taxpayers under the banner of TARP," after which "they then charged and made money … on the money that we gave them… in fees!" (timecode 17:54). So what you mean to say is that they charged their customers fees after taking TARP money? Isn't that how banks make money? And isn't making money the point? Isn't TARP money supposed to basically tide over these banks until they can stand on their own? The point of the TARP was to provide an injection of liquidity so that banks could remain solvent, and continue to lend to consumers and businesses. Once they are making money again (which Rep. Waters criticizes them for trying to do), they can repay the government.

Jump ahead to timecode 18:25 and you'll hear another revelation from Rep. Waters: "I’m going to reveal here today that they took the money and they earned more money on the money we gave them instead of allowing that money to be managed by others who were waiting to participate." IS THAT NOT THE EXACT POINT OF ALL THIS. Let me get this straight, you want these banks to take the money, and NOT to make money on it? What sense does that make? How does Rep. Waters believe that these banks are going to give the money back to the government? That's (ostensibly) why this committee dragged all of these CEOs away from their work -- to figure out how the TARP funds have been spent and when they can expect repayment. Rep. Waters, however, would clearly prefer her own grandstanding, and that the banks not increase their earnings off of the TARP money and therefore fail, leaving a swath of economic destruction in their wake.

Fast foward to 1:29:56 and you will hear Rep. Waters again asking questions, this time about credit card interest rates. She asks, have "any of you, since you received TARP money, increased the amount of interest on the credit cards by sending out letters to the consumers, to your credit card holders, indicating that this was part of the contract even though it may have been in small print." Again, what does she expect them to do? Not only are the banks strapped for cash to begin with, but she is pillorying them for trying to make back the money that they owe the government.

A few more comments that I can't let her get away with. Timecode 1:32:17. Rep. Waters criticizes BoA for having loss mitigation customer services outsourced to foreign companies. Companies outsource so they can save money. You know, the money that the government gave them and expects to be paid back. Also, Ken Lewis denied that any of his loss mitigation people were offshore, yet Rep. Waters concludes this line of questioning with "so you do have offshore loss mitigation work going on. Now, we have... [next point]." Didn't even give him a chance to answer. Why? Because no one is looking for answers here. They just want to knock these guys around a bit and see how many votes fall out of this little piñata party.

Rep. Waters goes on to make a claim that these companies are charging the government some kind of fees to accept the TARP money. Ken Lewis (BoA) responds "I don't know what you're talking about." Clearly no one else in the room does either, because shortly after, the acting chair gives her the hook.

Sadly, this is not even the worst of it.

Clown #2: Rep. Gary Sherman (D-CA)

The first horrendous thing I heard from Rep. Sherman is that banks should not continue to pay out dividends on common stock when they are receiving TARP. Does he realize where those dividends go? They don't go just to rich people, they go to everyone whose pension plan or 401k is invested in ANYTHING to do with financials. Hell, I (sadly) own some Wells Fargo stock, as does my dad. We get dividends, but we are far from rich. Everyone who is invested in these companies, from index funds to hedge funds, get dividends. But all of this talk sounds like only something that interests rich people, so BOOOO DIVIDENDS.

He also goes after these banks for having private jets. Let me be clear, I think it is public relations idiocy to retain private jets. Even so, Sherman implies (somewhere in his question time, around 3:25:00 give or take a few minutes) that companies should sell their plans in order to help pay back TARP funds. This is flat-out ridiculous.

Based on research I've done online, I've come to the conclusion that a corporate jet costs, at base, somewhere in the area of $5 to $45 million. Plus, a friend of mine who works in the aviation industry (in the past he worked specifically with corporate jets) tells me that a new, nicely-equipped 10-to-18-seater costs anywhere between $15 and $50 million. Maintenance must also be factored in, including hangar space, and according to my source those costs come to between $50,000 and $150,000 per year. Figure these big banks probably buy some sweet corporate jets, so let's set the base price at $50 million. Plus, maintenance for three years (since that's how long they are given to be on TARP), so let's even exceed the $150,000 for arguments' sake all the way up to $200,000 per year. That's $600,000 in maintenance for three years. All in all, it's $50.6 million dollars per plane savings if they got rid of them. That's not even factoring in how much depreciation there is for the jet! Incidentally, according to my friend, a used jet, depending on mileage and age, fetches $10-25 million.

The final numbers on this? I compiled them myself. Based on plane counts in an ABC News report, here are the (blurry) numbers:


Keep in mind that I used very generous numbers, and I assumed that the planes would fetch exactly the current market price for a brand-new, top-of-the-line, mack-daddy private jet. 1% or less of TARP money in every case, and for Wells Fargo, a measly two-tenths of one percent! One might point to the aforementioned ABC article, which says that CEOs racked up on average $150,000 to $200,000 per year in travel expenses. This is pittance compared to the difference between the $50 million I quoted as the base price for the jet and the $10-$25 million a used jet would actually fetch on the open market. Therefore, I do not factor it in.

Q.E.D., Rep. Sherman. You are a clown.

Clown #3: Rep. Gregory Meeks (D-NY)

Tuning into 3:38:31, we see Congressman Meeks, filling in for Barney Frank and asking questions about underwriters. He harkens back to already-proven clown Maxine Waters and asks "is there any opportunity ... to utilize any small, or minority- or women-owned firms" to do the underwriting.

Seriously?

We're mired in an economic shitstorm this bad, and that is your question? Firms should be utilizing the most cost-effective services possible (not cheap, but cost-effective). WHO THE HELL CARES what color the skin of the owner is, or if they have two X chromosomes, or if they operate out of a skyscraper or a woodshed. This is yet another instance of populist vote-grabbing.

Clown #4: Rep. Michael Capuano (D-MA)

Rep. Capuano did not ask any questions. He simply spent his five minutes excoriating the banks, saying that the CEOs that he helped drag all the way to DC should be locked up in jail. I guess he did ask a couple of leading questions, but he clearly was present to get on his soap box and not to get any real answers.

So that is my list.

Rep. Gary Ackerman (D-NY) is an honorable mention for the list of clowns.

His saving grace is that he was actually asking questions that were pertinent to the stated reason of this hearing -- to find out what the banks are doing with TARP money. That is not to say he demonstrated any wisdom. Quite the opposite. Check out the discussion beginning at 2:26:10.

Jamie Dimon (JP Morgan) said he lent out $50-75 billion since receiving TARP funds. Rep. Ackerman asks why people can't get mortgages. Dimon responds that he initiated 35 billion in mortgages, which is approximately equal to the amount this quarter last year. Rep. Ackerman responds, "With $25 billion more you gave out the same as you did the year before, so there's no increase. ... If you did $35 billion last time you did $35 billion this time we gave you $25 billion more to do it... then, nothing of that went out then." Before even giving Dimon a chance to respond, however, he demands that everyone submit their answers in writing.

I pray that all of you see the fallacy in this. If JPM hadn't gotten the funds, the amount of money lent would have been even less. GASP! Revelation!

In the end, all of this is just another example of what I've been saying for a while. There's no substance to politics any more, at least not to the politics of which the general public has a view. This meeting was simply a congressional clown caucus having a pinata party. Whack bank executivse hard enough, and the illiterati back in the N-th district of Lilliputia will say "Boo! Rich people!" and vote for you because you seemed like you didn't like them.

Congress had the audacity to drag these guys to DC, away from their work where they are trying to undo this clusterfuck, and then tell them they should be in prison. A heck of an incentive to perform, eh? Clearly, the clowns were in fact the ones asking the questions.