Remember the heyday of the housing boom when investors would "flip" properties? Speculators would put a down payment on a property, usually a new construction, and sell it before it was completed with a fat profit. But the "flippers" got bagged when the price of real estate started dropping. Many just walked away from their deposits and left developers holding the bag.
Why is this idea of flipping real estate important now? Well, it seems that private equity investors buying troubled banks will be prohibited from "flipping" the bank for at least three years. In addition, regulators are requiring purchasers to maintain a capital ratio of 15%, three times the ratio required of other banks.
What is happening is that private-equity firms are the main source of capital for troubled banks. Previously, the sale of a troubled bank would have been to another bank. However, with banks in a bind for money, regulators are permitting private-equity firms to step in and provide the capital.
Sheila Blair of the FDIC commented that the 15% rule is high, but also stated she did not want these institutions coming back on the market. John Dugan, Comptroller of the Currency expressed concern that the regulations contain standards that "go too far."
Well, Mr. Dugan, at this stage in the banking crisis its better to err on the side of caution then to let speculators do to troubled banks what they did to the housing market over the past few years. If investors can't maintain 15% of total assets, regulators should pass on the deal. Why does the government suddenly need to become desperate just to accommodate a group of speculators? There are still investors out there who have a sound financial base and who are willing to maintain the 15% rule.
As far as the flipping goes, maybe that should be a 20-year rule. Why even let investors sell a bank after three years? Where is the common sense in all this craziness. We are in the midst of the worst financial crisis since the Great Depression and here the regulators want to give the speculators a free pass to do what they please. This is just wrongheaded thinking. What we should be doing is avoiding another crisis, not creating a new one.
Do you believe that the 15% rule should be maintained?
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Reader Comments (Page 1 of 1)
7-03-2009 @ 6:12PM
clikdawg said...
"Regulation" is the new "de-regulation", just as "watchdog" now means "fox in the henhouse".
The "common sense in all this craziness", Connie, is that the pace of theft from American pocketbooks has accelerated dramatically since the turn of the century because this nation just hasn't the will to resist. Remember how Bam-Bam was gonna "end Bush policies"? Yeah; but he meant "end" in the sense of "complete" -- and now the process of relabeling "black" to mean "white" is reaching previously undreamt-of heights.
Our current Puppet-in-Chief is no more and no less than the picture-perfect Big Brother -- he's got the look, the sound, the moves, and the American media to back it up -- and his minions can hardly be expected not to take full advantage: "Jeez, all we gotta do is say "we're increasing regulation", and these morons, er, uh, citizens, will fall all over themselves helping us rob the bank!"
The supposed antagonism between the Obama Administration and Big Money is like that between the "Democratic" and "Republican" parties -- as substantial (and profitable) as the "bitter rivalries" in pro wrestling.
On a strictly logical basis, the country has two choices: It can continue to bellyache vainly at each fresh outrage (knowing full well that listening to the shrieks is one of the prime pay-offs for rapists); or it can organize itself at the grass-roots level and take direct action against what amounts to the take-over of its national government to what amounts to an organized crime syndicate. (The successful outcome of the transition to "legitimate" business detailed in the "Godfather" films -- "organized crime" is no longer a question of Frank Nitti in the streets, y'all; not on the surface, anyhow ... )
I am too old and too close to the end to advise anyone which course should be followed: Each man, woman, and
child must decide these things for his or her own self.
Up to y'all -- and your children and your children's children -- to decide if the cost of continued quiescence is worth paying or not.