Bloodsucking Bankers Immune to Change

The Obama Administration is making an effort to "name and shame" them, but the vampires in banking and on Wall Street are still busy draining liquidity out of the American financial system.

According to the McClatchy newspapers, "The first report under the Home Affordable Modification Program, involving more than 30 lenders that together collect payments on 85 percent of American mortgages, found an especially dismal performance by two major national banks--Bank of America and Wells Fargo--that received $45 billion and $25 billion, respectively, in taxpayers' bailout money."

From February through July, the bloodsucking banks, too busy padding earnings and paying executive bonuses, started only 9 percent of those eligible for mortgage modifications on the process.

Beyond the Main Street parasites, the wizards of Wall Street are also back doing what they did to wreck the economy, giving themselves huge rewards for speculation that, in a classic definition, combines “private profitability” with “social uselessness.”

As Paul Krugman points out, "Even before the crisis and the bailouts, many financial-industry high-fliers made fortunes through activities that were worthless if not destructive from a social point of view. And they’re still at it."

Even the Wall Street Journal is unnerved by the Citibank trader who raked in $100 million while wheeling and dealing under a government guarantee, with the champions of free markets muttering that "disaster for taxpayers is inevitable when private reward is combined with socialized risk."

It's long past time for Tim Geithner and the Obama economic team to get tough with their former associates in the world of manipulating money for the greed of the few at the expense of the many.

Profits Inevitable As Death and Taxes

Banks getting taxpayer bailouts are also cashing in on the demise of people who work for them or once did.

Today's Wall Street Journal has a tutorial explaining how banks are holding $122.3 billion in life insurance on workers and retirees with themselves as beneficiaries in order to escape taxes, inflate their earnings and to fund bonuses and pension benefits:

"Though not improper, the practice is similar to what is known as 'janitors insurance,' an insurance-on-employees technique that has long been controversial. Critics say the banks' insurance contracts are a way for companies to create tax breaks for funding executive pensions...

"Companies don't use the policies as piggy banks to pay for compensation and benefits. Rather, they benefit from keeping the money in the contracts."

Gains on investments are not only tax free but reported as income each quarter to offset interest on deferred pay owed to executives.

According to the Journal, banks have nearly doubled the amounts of such insurance in the past four years. Bank of America, which has taken $52.5 billion from taxpayers so far, holds an estimated $17.3 billion of such investments in the deaths of employees while Wells Fargo (including its Wachovia acquisition) has a similar amount awaiting future obituaries.

You may not be able to get blood from a stone, but American banks are doing very well with corpses.

The Bank Stress Test Hustle

The process may tell us as much as the results, which are finally due later this week after many false starts.

The delays themselves indicate the government is negotiating stress-test grades with the recipients, and now a series of leaks has economists worried about the manipulation that is going on. What kind of truth will we see in this hall of mirrors?

Two headlines in the Wall Street Journal today encapsulate the doubts and fears: "More Banks Will Need Capital" and "We Can't Subsidize Banks Forever."

The latter proposes that banks be forced to sell all toxic assets, rather than cherry-pick them for cosmetic purposes, and that the government take tighter control in return for bailouts:

"(T)he government should stop providing capital, loan guarantees and financing with no strings attached. Banks should understand this. When providing loans to troubled companies, they place numerous restrictions, called covenants, on what these firms can do. These covenants generally restrict the use of assets, risk-taking behavior, and future indebtedness. It would be much better if the government focused on this rather than on its headline obsession with bonuses."

Meanwhile, as they always do, banks are paying off their shareholders while starving depositors with close-to-zero rates on their money.

A new study shows that "banks only marginally reduced dividends in the first 15 months of the crisis, paying out a staggering $400 billion in 2007 and 2008. While many banks have been reducing their dividends more recently, bank bailout money had been literally going in one door and out the other."

Among the big banks that will be at the government trough again after test results are announced will be Wells Fargo, partly owned by Warren Buffett, who at his stockholder meeting last week touted its strength and wished that he were legally allowed to own more of it.

Maybe the government should find a way to let that happen. Better him than us.