Friday, January 30, 2009

Are Politically Correct Bank Loans Coming?

Will the fact that you are a tree hugging, Spanish-speaking, Afro-Asian, lesbian midget, be more important when you apply for a bank loan, than your income and credit score? That day may be coming. The government is now just trying out its big stick on the banks it provided TARP money to.

President Obama is taking the first micro-management, politically correct swing at the recipients of government money. The first swing is at an easy target, Wall Street bonuses. Says Obama:

We're going to be having conversations as this process moves forward directly with these folks on Wall Street to underscore that they have to start acting in a more responsible fashion if we are to, together, get this economy rolling again.

There will be time for them to make profits, and there will be time for them to get bonuses. Now is not that time.
They always start off with the easy targets. This isn't about micro-managing, this is about outrageous bonuses, they say.

But once you start down that slippery slope of telling banks how to operate, how do you stop, when the next politically correct proposal from a powerful, politically correct, lobby is made?

The head of JPMorgan’s asset management and private banking operations, Jes Staley, understands the danger. During a seminar at the World Economic Forum in Davos, Switzerland, Staley said that bail-outs of Citigroup and Bank of America could distort the market if the US lenders succumb to political pressure when making lending decisions.

He said political interference in the management of those lenders that have turned to the US government for large-scale support was the “biggest risk” facing his bank.

Get that? The economy is a mess, there are bad loans everywhere, and political interference is the biggest risk.

“If the big banks start to be geared for public policy as opposed to economics we may end up competing against institutions that are being run for non-economic purposes,” Mr Staley said . “That is the biggest risk we see out there.”

Public policy loans could ultimately be the death of banking as we know it.

The big money players already know this.

Henry Kravis, founder of Kohlberg Kravis Roberts, said in Davos, according to FT, that private equity groups were already looking for ways to bypass banks when raising capital.

Kravis said those moves could accelerate in the coming year, given the scale of capital that needs to be raised and the difficulties that banks face in using their own balance sheets.

“We have set up a broker-dealer so we can go directly to people who provide capital, people like Fidelity, Templeton, insurance companies, pension funds and sovereign wealth funds,” he said.

And so politically regulated loans will do what regulations always do, work against the entrepreneur and small businessman to the benefit of the power elite who have the money and connections to figure out how to work around the new regulations.

The oligarchy lives.

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