By Katie Kieffer

I predict medical professionals will see an uptick in bankers with government-induced drinking addictions. The government is driving bankers into depression. It doesn’t help that bankers have no one to vent to. The public has turned on bankers since the liberal media has painted them as greedy trolls who drove the U.S. into recession.

I want to shed some light on the ways that the government is driving a stake into our economy by attacking banks.

Government squeezes banks out of business

1. Banks are failing, failing everywhere. 140 banks failed in 2009 – the highest number since the peak of the S&L crisis in 1992. We are barely into March and 22 banks have already failed in 2010. In contrast, just 25 banks failed in all of 2008 and only three failed in 2007.

   In Oct., 2009, Timothy Koch, president of the Graduate School of Banking at Colorado, told bankers at the Bank Holding Company Association’s Fall Seminar that government regulators are implementing policies that will drastically reduce the size of the banking industry. Koch said that regulators are lowering banks’ “profit potential” by raising capital levels to 10 percent, causing the banking industry to “self-select.”
   Whereas most banks “used to be able to operate comfortably with 8 percent capital,” they now need “10 percent or more, ” Koch said. Bankers are having a difficult time meeting these needlessly high capital levels.

2. While federal regulators are cracking down on community banks that provide small business loans necessary to drive the economy, they are nurturing a set of “political banks” that take orders from the government. Political banks are banks with poor business models that the government bailed out, and, now has a political interest in overseeing.

Government has kind words but harsh fieldworkers

On  Oct. 30, 2009, the Federal Financial Institutions Examination Council released a document titled the “Policy Statement on Prudent Commercial Real Estate Loan Workouts.” FDIC Chairman, Sheila Bair, described this regulatory document by saying it, “encourages banks to continue making good loans to commercial real estate borrowers, many of which are small businesses…” and “examiners are instructed to take a balanced approach in assessing an institution’s risk management practices for workouts.” This document sounded nice, but has achieved little by way of unfreezing the markets and helping small businesses – the fuel of our economy – obtain loans.

FDIC Chairman, Sheila Bair

As ABA Banking Journal put it, “Some bankers are simply not ready to believe that a policy statement will bring meaningful change in the field.” Take it from the experts:

• Walt Moeling, banking partner for Bryan Cave LLP in Atlanta states, “Appraisers in this environment aren’t going to step up and give you any big numbers. They have every incentive to protect themselves.”
• Patrick O’Keefe, real estate consultant for O’Keefe & Associates in Grand Rapids, Mich. says, “Having been accused of overinflated appraisals [in good times], they now err on the other side – almost useless.”
• Kate Marcum, president of Millbury National Bank, contends, “They were aggressive about writing down the values and I’ve had some appraisals that were extraordinarily low (area values have fallen around 20% recently). Appraisers are really afraid to say anything positive.” She says that the examination process has “decimated guarantors. Quite frankly, [examiners] don’t want to be caught with a bank with a problem they didn’t identify.” So, they identify nearly everything as a problem.

Former California regulator, Walt Mix, sums the government’s new regulatory document this way, “And the real problem, that can’t be addressed in the guidance, is the bid-ask differential for the [commercial real estate] property. No regulatory document is going to improve the market’s view of underlying collateral.”

Government pushes banks to bail out negligent clients

Effective July 1, 2010, the Federal Reserve has prohibited banks from charging clients with deficient money management skills fees for over-drafting at ATM machines or on debit cards unless the client agrees to pay such charges. Clients with poor money-management skills are probably the least likely to agree to a fee that would crimp their ability to spend beyond their means. Overdraft fees are a practical way for banks to compensate for the risk of loaning money to negligent clients.

Granted, some ATM machines will allow consumers to withdraw beyond their account balance without informing them. A simple “consumer-protection” solution would be to inform consumers rather than to prohibit overdraft fees.

But, our government, high on spending steroids, sympathizes with citizens who suffer from similar spending addictions. Thus, the Federal Reserve has decided to slash up to $20 billion in revenue from banks by barring overdraft fees. Smart bankers at Wells Fargo & Co., Fifth Third and U.S. Bancorp are trying to recoup these funds by offering clients short-term loans called “checking advance products” comparable to “payday loans.”

These loans are certainly risky and expensive debt, and even though they inform customers of risk, banks face scrutiny from consumer protection groups who claim that these products are “debt traps.” A “trap” implies that one is an innocent victim. Negligent consumers are not innocent victims. They are negligent consumers who won’t take the time to check their account balance before they go shopping for cash at the ATM machine.

Let’s get the facts straight: No one has a right to spend beyond their means. No one has a right to take more money out of their bank than they put in. If consumers wish to act irresponsibly, and the Federal Reserve strips banks of the ability to charge overdraft fees, then banks will need to find another means to penalize and rightly profit from the risk they assume from lending money to fiscally irresponsible consumers.

Let’s all give bankers a little love and focus our energy on limiting the size of government so that the economy can fully recover.

By Katie Kieffer

Helen of Troy by Dante Gabriel Rossetti, 1863, oil on panel

I’m sure you’ve heard of Helen of Troy from Greek Mythology. After Paris of Troy abducted Helen from her husband, Menelaus, the Greeks launched the Trojan War to win her back. Her beauty and power were undeniable. She crushed and melted the hearts of the strongest men.

In Greek Mythology, heroes were mortals who overcame the fear of death, typically during a heroic battle such as the Trojan War, to achieve “kleos” or glory. Helen of Troy is a Greek myth. “Hell in Troy” is a Greek reality. Let me tell you the tale of Hell in Troy.

Greece is one of the most beautiful countries in the world, surrounded by the Ionian, Aegean and Mediterranean Seas. It is rich in history and culture. All this is about to come tumbling to the ground. Greece has roughly $72 billion in debt due in 2010 and the world markets are concerned by Greece’s downturn.

Hell in Troy is the “battle” that Greece faces today. I am pointing out Greece’s economic challenges in hopes that they might help us understand the U.S.’s economic situation and avoid Greece’s pitfalls.

1. Government growth:
   On Feb. 24, about 50,000 Greek union workers went on strike in the streets to protest the Greek government’s proposal to cut their salaries in a desperate attempt to control the country’s debt debacle.

   Meanwhile, the average federal government employee in the U.S. makes over $75,000 and President Obama has approved a 1.4 percent salary increase for federal workers. In the private sector, the average employee only makes around $42,000 – if they haven’t already taken a pay cut or been laid off.

   The U.S. needs to be careful because the Greek union workers are comparable to U.S. federal employees. If the U.S. government tries to reduce its debt by legitimately cutting federal employee salaries, there will be a Greek-style strike. The U.S. is setting itself up for problems by irresponsibly bloating the federal payroll.

   

   Greek rioters clash with police officers during a worker's strike in Athens on Feb. 24, 2010. Image credit: EPA/BGNES

2. Poor government fiscal policy: As I proved here, the U.S. recession was caused by loose government policy, not greed on Wall Street. Similarly, the primary source of Greece’s economic downturn is the Greek government’s (i.e. the European Union’s) loose communal fiscal policy and the Greek government’s wild spending habits.

   The media, the U.S. government and many European officials are blaming Greece’s misfortunes on Wall Street’s “most successful” bank, Goldman Sachs. It is unfair for the U.S. government and the European Union to lambaste Goldman Sachs for participating in a 2001 currency trade that effectively acted as a loan to help “Athens meet Europe’s deficit rules while continuing to spend beyond its means.” Here’s why:

   

   Goldman Sachs CEO, Lloyd Blankfein. Image: Smialowski/Bloomberg

   Fed Chairman, Ben Bernanke, recently announced that the U.S. would be strictly scrutinizing Goldman Sachs’ business relations with Greece. What Bernanke failed to admit is that Goldman Sachs absolutely did not create the loose rules of the game – in the U.S. or in the European Union – the U.S. government and the European Union created them respectively.

   Goldman Sachs is “the most successful bank on Wall Street” because it takes risks and plays the existing rules to the fullest. In 2001, this swap was considered legal under loose European Union policy. The European Union previously approved of similar swaps by other banks including JP Morgan and Merril Lynch for Italy and Greece.

   Goldman Sachs is receiving an undue amount of attention and blame for ineffective rules and systems within the European Union. Certainly there were unscrupulous Goldman Sachs employees who took advantage of loose government monetary policies, but they did not cause Greece’s woes. At the end of the day, Greece spent herself into debt on her own.

   You start to question the credibility of the Federal Reserve, which stubbornly resists full transparency and audit itself and works hand-in-hand with a Treasury Department that revised its benchmark reports on Feb. 26, 2010 to show that, “China’s holdings of U.S. Treasury securities stood at US$894.8 billion at the end of December, keeping it in first place ahead of Japan. On Feb. 16, the government reported data that showed China had been surpassed by Japan.”

   It seems a bit strange that this revision came out in the wake of reports that China is losing interest in buying U.S. debt. Will the government soon announce that the “revised” U.S. unemployment rate is three percent?

3. Reliance on a common currency and an economic union: The U.S. does not want to follow in the EU’s or the euro’s footsteps if she wishes to climb out of recession. A common currency and economic union have teed Europe up for communal economic disaster. The British politician and Member of the European Parliament, representing South East England for the Conservative Party, Daniel Hannan, recently discussed Europe’s financial woes with Glenn Beck:
   

   Daniel Hannan

   The United Kingdom would be in financial peril, Hannan said, “if we had joined the Euro. Thank heaven we kept the pound. Because, like I say, Greece’s deficit is 12.7 percent. Ours is 12.6 percent. The only thing that saved us from a Greece-like collapse is the fact that we were able to have a devaluation of our currency instead of having that devaluation in output and jobs. You guys wouldn’t want to swap your problems for Europe, as severe as your problems are with the way things are going there. But I’ll tell you another thing. The war cry of tax without representation doesn’t really apply so much these days in the U.S. Yes, your taxes are too high and they’re rising but at least they’re set by people you can vote for. Increasingly, the European Union is starting to levy, if you like, federal taxation, and so the protest of no taxation without representation is now much more relevant in Europe, because we feel that we have impulse being levied on us that we can’t get rid of.”

   In order to end this “Hell in Troy,” and win the “glory” of overcoming economic death, Greece needs to bring out its Trojan Horses: Free market principles and small government. The U.S. needs to learn from Greece’s mistakes and to do the same.

   

   Trojan Horse

By Katie Kieffer

Does this sound familiar? You were two peas in a pod. You wanted to grow old together. You never fought. About anything. Except money, that is. Now, the two of you are history.

Quit throwing darts at your ex’s photo. Pull up a chair in my office,  and I’ll give you some therapy.

May I trade you a cup of coffee and a tension ball for those darts before we begin?

Now that you’re relaxed, let’s get down to business. Here’s my message for you today: If you feel like your love life is doomed to failure, you may be putting too much blame on yourself.

I’m not saying that you aren’t responsible for your character and actions. If you’re immature, manipulative, dishonest or unfaithful, then you are largely to blame for your romantic detours. On the other hand, if you are a genuinely good person, and finances were the main source of tension between you and your former partner, you may be justified in blaming big government for your breakup.

I saw your eyebrow go up. You think I’m trying to connect big government to everything. Well, I wouldn’t have to if it weren’t so pervasive. First, I want to tell you about a recent study commissioned by PayPal called “Can’t Buy Me Love,” that found:

1. “Money and finances are the No. 1 reason participants said they argued with their significant other.”
2. “Forty-five percent of couples fight at least once a month about finances, and for those ‘traumatized by the current economy,’ the arguments are more frequent.”
3. “One-third of people said they’d wait to marry someone until that person’s credit score improved.”
4. “More than one-third said they would consider not marrying or moving in with someone unless he or she ‘makes a fair amount of money.’”
5. “65%, said they wouldn’t want to date someone with significant debt.”

So, by this study, financial compatibility issues and financial hardship can tear an otherwise strong relationship asunder. The PayPal study’s findings are relevant today since the U.S. economy is experiencing one of the darkest financial downturns in history.

Here’s the story of government intervention that most media professionals won’t tell you about: It is the story of Clinton-era loose home ownership policies. While there certainly were unscrupulous real estate brokers, lenders and mortgage bankers who took advantage of loose government policies and exacerbated the recession, they did not cause the recession. The entire recession and the woes of any industry can be traced back to government intervention, not capitalist greed on Wall Street.

This story of government intervention that spiraled into a residential real estate crisis, and eventually an economy-wide recession begins in the Clinton era, when President Clinton’s Secretary of Housing and Urban Development (HUD), Henry Cisneros, persuaded Clinton to drastically ease mortgage restrictions for first-time home buyers.

Rather than increasing home ownership, these loose policies, including relaxing appraisal rules, eliminating the five-year stable income requirement for first-time home buyers and lowering the standards of Fannie Mae and Freddy Mac, opened the doors to home ownership to an additional 10 percent of the U.S. population that did not qualify to become home owners.

Clinton was able to tinker with the economy because he had the luxury of coming into office after Reagan, a staunch believer in the free market system. The Reagan administration prepared a wonderful gift for the Clinton administration, a vibrant economy. The nonpartisan National Bureau of Economic Research reported that the Reagan era unleashed the “longest sustained period of prosperity in the 20th century” from 1982 to 1999.

Clinton’s policies had a devastating ripple effect on the entire economy. Foreclosures sprang up, consumer spending went down, the credit markets froze and jobs disappeared.

There is an uncanny parallel between the foreclosure-related relationship strife and community unrest that traumatized Cisernos’ pet real estate development in San Antonio, Lago Vista, and the results of PayPal’s study, conducted during a recession.

Cisernos’ failed experiment shows that government intervention induces financial hardship. PayPal’s study shows that financial hardship leads to romantic strife. Thus, if you were one of the unlucky or naive souls who thought that government was your friend – and now have a foreclosed property and a text message from your ex that says, “We r over” on your hands – you can feel free to swap your ex’s photo for an image of Congress on your dart board.

Well, that concludes our therapy session. Have fun hitting the Congressional bullseye.