Jul 02, 2009

Tomorrow the Fed will release the results of the "stress tests" recently performed on 19 of the largest U.S. banks. If early rumors are to be believed, 10 of the 19, or 52.7 percent, are not as healthy as the Fed would like and may need additional capital to survive. While the overall banking sector appears to be in pretty good shape, according to the Fed, some disagree in the strongest of terms.

The IMF has estimated an additional $275 billion is needed to protect many banks from further losses and keep them solvent. Ben Bernanke disagreed in his congressional testimony on Tuesday. He believes IMF estimates for any further capital needs are overstated. So I guess it depends on who you believe.

The question that must be asked, regardless of how much the banks actually need, is what steps are going to be taken by the 10 banks to raise the required capital to fend off further losses and ensure their survival?

There are a number of ways. Banks may choose to sell certain assets and raise cash. They can do so by outright sale or by using the recent Treasury Department tool referred to as the Public-Private Investment Program, or PPIP. It is specifically designed to assist banks in selling nonperforming assets to get them off the books and improve the balance sheet.

Some may turn to the private sector looking for capital. There are trillions on the sidelines waiting to be invested by the private sector for the right transactions. Transactions that, if profitable, will not be attacked by congressmen looking to score political points with the public.

Others may convert "preferred shares" to "common shares" to improve the Tangible Common Equity, or TCE, on the balance sheet.

Each one has its positives and negatives. I won't bore you with the details. You would probably fall asleep. But there is one move with nothing but negatives – one to which Congress needs to "just say no!"

And that's more government bailout money.

More government assistance for banks is way beyond the initial goal of stabilization. One can only surmise that any further action is in essence a nationalization of the banks, which many critics of the bailouts, like myself, see as the ultimate goal of the current administration. "Never allow a good crisis to be wasted," Obama officials have said. This is especially true if they can take over the banks in the process.

Yet I think the government is overplaying its hand in the current financial crisis, and the American people are getting ready to send a clear and loud message to D.C.: No more bailouts!

The American people realize there has to be an end to government support at the expense of taxpayers – especially when many of the billions of bailout dollars are paying dividends and executive compensation.

A recent study indicated that banks marginally reduced dividends in the first 15 months of the crisis and paid out dividends totaling $400 billion in 2007 and 2008. Banks would receive money from the government (i.e., you and me – the taxpayers) and pay it out to the shareholders in dividends. Is anyone in America comfortable with that process? Failing banks should be required to cut costs and reduce every nonessential expense, including dividends, before taking a penny of our money.

Now that the "end of the world as we know it" fervor has subsided, it is time for the banks to stand on their own feet – no more government money. If they cannot survive with the billions that have been pumped in at our expense, it is time to allow creative destruction of the free markets to take us to the promised land of renewed prosperity.

Allowing weak banks to be shut down or purchased by stronger, better managed banks is the way back to long-term growth and sustained prosperity. The strong will survive; the weak look for another business.

We have seen creative destruction work in "just in time" inventory systems, eliminating old style warehousing at a substantial cost savings to the consumer. Anybody ever heard of Wal-Mart? News websites such as WND are replacing the conventional newspapers with a more efficient and timely delivery of news to the consumer at less cost. Why read tomorrow about what is happening today?

Bad banks should fail, and the CEOs should lose their jobs. The shareholders and the boards of directors should bear the brunt of losses for allowing management to make risky bets and pay insane compensation for failure, not the taxpayers. Let's face facts. How many bankers do you know who will be on food stamps if their banks are closed down or consolidated? Inefficiencies will be reduced, services will be improved and all without it costing the taxpayer a penny.

I know my opinion won't play well with the pinstripes on Wall Street, but if one more penny of taxpayer money goes into bailouts for the banks, you will see angry people in the streets in numbers that will make the April 15 tea party crowds look small. People are mad as hell, and they are not going to take it anymore.

Americans have had enough. They have seen their government grow and expand while they have had to cut back and save. They have watched banks get billions while citizens have had to work harder for less money just to keep their jobs. They have watched neighbors lose their homes while bank stocks tripled in value.

If Obama, Giethner and Bernanke are going to ask the American people to sacrifice, then the same must be asked of the financial institutions that have received way more than they ever deserved. Enough is enough. The time has come to allow the free market to work through the remaining problems.

The end of the world as we know it apparently has been put on hold for the moment. Let's take that time to build a stronger, more reliable system and learn from mistakes so as not to repeat them. If we don't, government will be a permanent part of the financial services landscape. Government can't take the garbage out efficiently, no less run a $15 trillion economy.

So Congress, along with the American people, must "just say no" to any further bailouts.