A great letter from the Chairman and CEO of UMB on the bailouts, I made the best parts bold. HT: Michelle Malkin
Last 5 posts by BrandonNovember 3, 2008
Mr. Henry M. Paulson, Jr.
Secretary of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220Dear Secretary Paulson:
As I reflect on the financial crisis that has gripped our nation, I feel compelled to write to you.
Government action was clearly needed to help shore up the nation’s financial institutions. I applaud you for taking quick action. However, I am gravely concerned with the actions that have been taken and their long-term implications for both our industry and the impact these measures will have on the moral fiber of our future leaders.
First, the rescue was more of a bailout. Its results will have made the large institutions larger and harder to manage and regulate. Secondly, as the system is repaired, these institutions which took such actions to bring the system down will be rewarded with new capital and clean balance sheets at the taxpayers’ expense. Meanwhile, financial institutions such as UMB will be penalized for operating with sound principles. Our first order of business is to protect our depositors’ liquidity. As a result of your actions, those who abused the system get stronger and those who protected their shareholders’ interest and those of the Deposit Insurance Fund will pay the price.
Lastly, I think it is inappropriate to use taxpayers’ funds to inject into healthy private enterprises. What message are we sending our future leaders? Is there no reward for doing the right thing? It seems there is only penalty. The reward seems to be for the reckless.
I believe that under a new administration, the CPP will become a political issue. I am afraid the new capital being used to shore up balance sheets and make acquisitions will not be looked upon favorably, as its original intent was to free up liquidity for extending credit.
Please while you go about the hard work of repairing our nation’s financial system, do not overlook the opportunity to restore dignity and respect for sound and responsible business principles.
If you don’t stand up for the good guys, who will?
Thank you for your consideration.
Yours very sincerely,
Mariner Kemper
Chairman & Chief Executive Officer
UMB Financial
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I agree, but the situation is so complicated that it is no longer certain that putting a stop to the bailouts will help. I personally think it is too late to save the financial sector or the auto industry. But, who wants to make that call and suffer the consequences?
The problem is that the banking system is too inter-related with credit derivative exposure (thanks to JP Morgan’s invention). This is not even a new issue, Warren Buffet previously called these derviatves financial weapons of mass destruction, they bankrupted Orange County, and nearly took down the world’s financial industry in 1999 with the failure of LTCM.
As much as I am in favor of the free market, a bail out is needed. We have the financial equivalent of having one power grid for the entire country–if any portion loses power the power goes out across the entire country. But with banking its worse, the entire world is connected.
In short, regulation is needed to prevent the interconnections. Just as a battleship can seal off a portion of the ship in the event of a leak the financial system needs to be able to allow a bank to fail without knocking the remaining banks down as a result.
Buckle up, we’re in for a bumpy ride.