Free Shell Game (Stand Alone 2) by Joseph Badal Page A

during the Great Depression and again after the 1986 Tax Reform Act.”
    “And the customer is screwed,” Edward said.
    Snowden nodded. “We can’t win this game, Eddie. Just look at what New York Attorney General, Andrew Cuomo, did to Bank of America. He’s just another politician to claim bankers are the villains who created the capital markets meltdown and the recession. Sure, the big banks contributed to the problem, but in 1999, who was it, as HUD Secretary, that established new affordable housing targets requiring Freddie and Fannie to buy $2.4 trillion in ‘affordable’ mortgages? Andrew Cuomo! Fannie and Freddie invested in subprime loans that will weigh on all of us for years. Huge losses there. And the tax payer has to cover those.”
    “My attorney told me about some of this a few days ago,” Edward said. “But how can lending to good companies just stop? Didn’t I read a little while back that the regulators are working to ensure the availability of credit to sound small business borrowers?”
    “You did. It’s bullshit. The politicians caused the problem, demonized the banks, and now they’re very softly questioning the regulators for going too far in the other direction. And as long as there’s money to be made by friends of the politicians and of the regulators, nothing’s going to change. Sol Levin gets gored and Gerald Folsom gets the bank handed to him on a silver platter. That bastard Folsom must be sleeping with someone at one of the regulatory agencies. It seems like he turns up every time there’s a sweet deal available.”
    “What’s in all of this for people like Folsom?”
    “A damn fortune. The regulators wipe out a bank’s ownership, hand over the bank to one of their buddies who injects capital into the bank in return for a discounted purchase price of the bank’s assets and a loss-share arrangement with the FDIC. The Feds share in any loan losses the new owner might incur. So Folsom is brought in to take over Broad Street at a sweetheart price, starts selling off bank assets at a premium to the discounted price he paid, gets indemnified by the Feds against a substantial share of any losses, and ends up with a bank franchise that has residual value when all is said and done.”
    “Unbelievable!” Edward exclaimed. “And who covers the cost of these bailouts? The taxpayers?”
    “Indirectly, but yes. The Feds require banks to replenish the deposit insurance fund through higher premiums. In 2008, our annual premium was $300,000. In 2009, the agency forced us to pay $9 million in premiums for two years in advance. That means $9 million less in capital, and then we get criticized for not having enough capital. It also means $90 million less in lending capacity, assuming we can leverage capital 10 to 1. So, our earnings are impacted. How do we compensate? We raise our fees and interest rates on loans and lower our interest rates on savings and CD accounts. Who pays? It’s always the consumer.”
    “If the Feds are spending all this money to take over banks and subsidize new owners, why don’t they just do the same deal for the old bank owners and allow it to stay in business?”
    Snowden’s features hardened. Edward could see his question had struck a nerve.
    “You’re a smart guy, Edward. I wish we could handle your banking needs. You’re the kind of client we normally want. I can’t answer you with any specificity. But I have my opinions, for what they’re worth. I’ve probably said enough on that subject already.”
    “When’s this going to end?” Edward asked, feeling sick to his stomach. “Is it going to end?”
    “Oh, sure, it’ll end, but it’ll take a few years, at least. The regulators will write down commercial real estate loans despite the strength of the borrowers. They’re setting arbitrary values on collateral, regardless of appraisal values, deteriorating lending institutions’ capital accounts. Then the regulators criticize the banks for being