The Next Bank Bail-out Has Already Begun, and It’s Going to be Big
With the ink of President Obama’s signature on the Frank-Dodd Bill barely dry, the next bank bailout has already begun. How can that be, you might ask? Weren’t we promised that this “landmark” legislation would end bank bailouts? Weren’t we promised that this legislation ushered in a new era of transparency on Wall Street? Could it be that the politicians lied to us? Say it ain’t so—but it is.
How can I make such a preposterous claim, you might ask? What evidence do I have to support my assertion? Well, I reply, look no farther than the second-quarter earnings report of the Wall Street Titan J. P. Morgan Chase. (It is available online for all to peruse at http://investor.shareholder.com/jpmorganchase/presentations.cfm.) You will, however, have to dig deep into the report, into the financial supplement to page 32, where the company reports information on the credit quality of its loan portfolio. At the bottom of the page, in footnote (a), you will learn of more than $12 billion in nonaccrual loans (read: the borrower ain’t gonna pay) made by the bank, but which the bank does not consider to be “nonperforming.” Why not, you might ask? There in footnote (a) is your answer, and prima facie evidence of the next bank bailout. These bad loans are insured by U.S. government agencies. Which agencies, you might ask? So do I, because the bank doesn’t identify these agencies, but the most likely culprit is Federal Housing Administration, which insures residential mortgages.
Of course, it is unfair to single out J.P. Morgan Chase. Look no farther than the second quarter earnings report of Bank of America. There, on page 40 of its supplemental information, is a line item “Federal Housing Administration insured loans past due 90 days or more and still accruing,” showing a balance of more than $15 billion. Why are these loans not considered to be “nonperforming,” you might ask? The answer is simple: Bank of America plans to collect from the FHA.
Likewise for Wells Fargo. On page 33 of its supplemental information is a footnote that its “90+ days past due and still accruing” line item “excludes GNMA and similar loans whose repayments are insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.” By comparing the reported amount with the amount from its Y9C regulatory filings, I estimate the exposure at more than $30 billion.
If this brings to mind the back-door bailout of Wall Street banks by AIG, it should. At just these three big banks, the taxpayers are on the hook for almost $60 billion in bailout money. This is yet another way to funnel our taxpayer dollars from Main Street into the banks on Wall Street. So the next time you hear President Obama, Sen. Dodd or Rep. Frank tell us how they have “ended bank bailouts,” remember that old comment from Yogi Berra, “This is like déjà vu all over again.” Only this time the conduit is not AIG, it’s the FHA.
Note: This blog appeared as an Op-Ed in the Washington Times on August 26, 2010
