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How B of A made quick fix from bailout
Bank of America sign in Pasadena, Calif.
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Kai Ryssdal: The CEO search committee at Bank of America is breathing a huge sigh of relief today. B of A announced this morning it's finally able to pay back the $45 billion it got from taxpayers last fall. Seeing as how it wasn't all that long ago that B of A was still on the ropes, we asked Marketplace's Steve Henn to explain the turnaround.
STEVE HENN: Bank of America was one of the largest recipients of TARP money. And Paul Miller at Friedman Billing's Ramsey says paying back all of that cash in one fell swoop is a big positive but...
PAUL MILLER: They still have to now focus on making money. This company hasn't made money in the last couple of quarters on a core basis.
So if Bank of America is not making big profits where did all this money to pay back the government come from?
MILLER: Well, it's coming from basically not lending out any money. So as their loan portfolio has shrunk by about $100 billion over the last year instead of buying securities or making more loans they put it into a cash account.
So if you paid off a B of A loan in the past year, chances are the bank just held on to that money. TARP was supposed to help healthy banks continue lending during the financial crisis, but some analysts, like Miller, now wonder if it had almost the opposite effect. Bank of America is using more than $26 billion from its cash horde to cover TARP debts, and it will raise $23 billion more by selling stock and other assets.
In the end, taxpayers lost nothing and even made a few billion in interest. So what's the government going to do with all this money now?
BARNEY FRANK: I think the best thing you can do right now is to give more money to state and local governments to avert layoffs and let them even hire some more people.
Congress Barney Frank is chair of the House Financial Services Committee. He would also back more infrastructure investments, and he'd like to see at least $2 billion be spent helping unemployed Americans make their mortgage payments. All these ideas would require a new law, but Frank says its about time to think about Main Street.
In Washington, I'm Steve Henn for Marketplace.
What many should be taking from this is that Bank of America is doing what it hopes their costumers don't do, that is, payback debt as soon as possible. Bank of America has just taken a huge ad campaign for a 10 year 1.5 Trillion dollar investment into low to moderate income communities. I hope marketplace will look closer at this project.
BTW:
I'm disappointed in that quote from Rep. Barney Frank. I honetly expected more from him.
The best thing to do with that repayment money would be to do what it was intended for in the first place:
Give it out as loans to businesses needing the credit. If banks won't do it, then the SBA should.
Remember back when everyone was complaining about the lack of transparency in the financial sector and how that was an instrumental part of the economic collapse we're currently mired in?
Banks were told to clean up their books and only show positive valuations on items that were truly "nontoxic" . . . until April. When the FASB changed the accounting standards on what constituted true market value on "assets" and let the banks essentially write their own rules on that, all those hopes went *poof* out the window.
I cannot now listen to ANY banking story without a nagging little voice in the back of my head reminding me that nothing, in the banking world, is as it seems.
*YOU* may think B of A scrimped and saved to repay that $45 Billion to the U.S. Treasury so they can revert back to their old wanton ways of overpaying top execs, but *I* have every confidence this is yet another accounting sleight-of-hand trick and I'm having none of it.
The best thing the government can do with this money is to do nothing with it. History clearly shows that government spending is counterproductive, getting a smaller return than the investment while preventing the taxpayers from whom the money came from making productive investments instead.
