Banking Law

While I was going to post tonight about the Congressional Oversight panel's sudden discovery that commercial real estate threatens the community banking system, I'll get to that next week. Instead, I was sidetracked by some thoughtful e-mails I've received from a variety of readers that concern which "players" in the current commercial banking arena are primarily to blame for the industry's woes. Fingers were pointing in all directions.  I also received a reminder from a reader about a post I did a couple of years ago when the proposed Wall Street bank bailout was still being debated. He enjoyed the fact that it seemed to be prescient with respect my most recent post about the FDIC disposing real estate loans and loan participation interests at fire sale prices. While that may or may not be true, it also contained a discussion about personal responsibility that cuts closer to the bone for me. Therefore, I'm going to re-post it tonight.

It's always useful when you're assigning blame in a complex situation to first stop and look in a mirror. After that, you can starting throwing stones.

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There was an interesting juxtaposition of articles in yesterday's Dallas Morning News. Business columnist
Cheryl Hall worried that the latest bailout might make the same "mistake" that she alleges the RTC made: selling assets at too low a price, and allowing buyers to reap big returns when prices recovered. Her article featured real estate developers and S&L owners in Texas who suffered from (and many would argue, contributed to) taxpayer losses caused by the meltdown of the S&L industry in Texas in the late 1980s and early 1990s. They included developer Henry Billingsley, who lamented that his strapped finances during the last downturn prevented him from making a killing from the RTC, but who is elated that this time around he's got the resources to take advantage of the proposed (albeit currently aborted) bailout.

"It wasn't that you didn't know that it was a once-in-a-lifetime opportunity," says developer Henry Billingsley, who made two RTC deals but was too illiquid to bite off more. "When I saw this situation with [U.S. Treasury Secretary Henry] Paulson, I said, 'There is a God in heaven. I'm going to get a second bite at the apple.' "

Yes, I always regard it as proof of God's existence that opportunity exists to profit financially from the misfortune of other human beings. Doesn't every believer?

Craig Hall (no relation to Cheryl, as far as I know) was an apartment syndicator and owner of a state-chartered savings association during the 1980s. The thrift failed and many of his apartment projects went bankrupt. He, too, is itching to make a killing this time around.

The chairman of Hall Financial Group expects additional financial institutional failures to lead to the creation of an RTC-esque clone.

He and Herb Weitzman, founder of the Weitzman Group, the state's largest retail brokerage company, have joined forces to take advantage of any deals that crop up.

"I was a participant on the wrong side last time," Mr. Hall says. "I want to be on the right side this time."

The last time around, the RTC and the FDIC had a list of people who caused losses to the FDIC (or to the now-merged FSLIC), and those folks were barred from participating as purchasers of assets from the RTC or FDIC (or as contractors with either agency). If this time around, a similar list is used, and the FDIC and Treasury look back far enough, then the dreams of some of these players who were once on the wrong side will not be sweet ones. Some might say that is only fitting.

Editorial columnist Rod Dreher was looking for different--and deeper--lessons from the current crisis than the ability to make a pile of money out of it, and whether the "New RTC" would sell assets at too low a price.

Novelist David Foster Wallace, who recently committed suicide at age 46, once told an interviewer that his generation had been morally "gutted" by a pseudo-sophistication that sneered at boring everyday truths. He explained that privilege had caused so many of his contemporaries to forget that plain-spoken wisdom ? the sort of truisms that supposedly only children and suckers believe ? is actually, you know, valid.    

"The idea that something so simple and, really, so aesthetically uninteresting ? which for me meant you pass over it for the interesting, complex stuff ? can actually be nourishing in a way that arch, meta, ironic, pomo stuff can't, that seems to me to be important," he said. "That seems to me like something our generation needs to feel."

[...]

Mr. Wallace's observation came to mind the other day as I watched a beleaguered Wall Street executive on MSNBC try to obfuscate his company's key role in helping cause the crisis, the near-apocalypse that has delivered the U.S. financial system to the far end of the valley of the shadow of debt, to the edge of Armageddon. The poor man gassed on for 10 minutes, using every possible verbal maneuver to avoid answering direct questions put to him by journalists.

Who can blame him? We have become used to this sort of thing. We've come to prefer comforting lies to hard truths born of observation and experience, thinking that in our brilliance we had somehow escaped the iron law of necessity. 

[...]

Complex financial instruments come and go, but the hearts of men remain the same. Greed, vanity and hubris we always have with us, as well as a weakness for the soft sophisticated lie over the hard plain truth. About human nature, tradition ? the accumulated wisdom of mankind ? is never wrong. True conservatives ? as opposed to those who confuse mammon-worship with moral and intellectual principle ? know that a tolerable order can only exist when most people live by the moral laws articulated in time-worn banalities.    

So, send the tumbrels into the streets to carry off the heads of sophisticates who believed that we had repealed the laws of economics and human nature by our cleverness. The Gods of the Copybook Headings demand propitiation. We shall offer them scapegoats and try to forget our own complicity in the coming catastrophe.    

After all, these scoundrels did not elect themselves, nor was there an outcry heard in the land against Wall Street rapacity and recklessness when our 401(k)s were rising, and all but the lowliest plebeian was moving into his very own McMansion.   

Along those lines, there's one proverb that we will all become painfully acquainted with in the years to come: You reap what you sow.    

Near the end of the Oscar-winning movie "Unforgiven," the young assassin who calls himself "The Schofield Kid" is shaken by his first murder, and lamely tries to justify it with the assertion, "Well, I guess he had it coming." Clint Eastwood's character, William Munny, a man whose life of darkness is finally coming full circle, utters the benediction, "We've all got it coming, kid."

May all of us get everything we have coming to us as a result of this latest crisis, bailout or no bailout.