Tuesday, March 24, 2009

Banks Uncomfortable With Spending Restrictions of Taxpayer Bailout Money

/PRNewswire/ -- As history has shown and continues to prove, every time the U.S. government gets involved with something, whatever it is becomes slower, costs more, and satisfies less. James Wilson from ForeclosureWarehouse.com stated that our recent taxpayer-backed funds known as the economic stimulus plan has too little oversight according to citizens and many in government, and too many restrictions and controls according to some recipients. Because of executive pay restrictions, several banks of varying sizes have decided to give the money they received back or refuse it.

The funds were originally needed, it was proposed, to avoid collapse of financial institutions, but has exposed the willingness of banks to spend the money as they see fit, on corporate extravagance like jets and executive bonuses, and supporting local community projects like zoos and opera companies, for example.

The banks dislike being told that in order to receive the money from the stimulus plans intended to keep them from collapsing, the banks must postpone evictions, modify mortgages for distressed homeowners, slash dividends, cancel employee training and morale-building exercises, withdraw offers of employment to foreigners, and allow shareholders to vote on their executive pay packages.

If the government were restricted in the same way by the citizens, such as the repeated use of military aircraft to fly willy-nilly at the discretion of the speaker of the House, Nancy Pelosi, at the taxpayers' expense, for example, it is certain that the government would loudly complain.

And who can blame the citizens for wanting to rein in the spending of the government, something the government has never done and continues not to do.

Some say that the stimulus package conditions don't go far enough, while others complain of fascism - privately owned companies controlled by the government.

James Wilson agrees with banking experts who warn that expecting weak banks to carry out the policies of the government could exacerbate the situation, forcing banks to engage in lending practices that cause them more losses and places them into more precarious positions, involving the government even more, or closing their doors for good.

It has been reported that some in government, like Barney Frank and Chris Dodd, had for years, encouraged or pressured lending institutions Freddie Mac and Fannie Mae, to approve loans to more people that traditionally would not qualify for loans for the purpose of allowing more people to own their homes. Now that the government controls these two companies, these lenders have been told to spend billions of dollars buying bundles of mortgages (of which there are no buyers), and to allow homeowners to refinance their loans even with no equity on the part of the borrower. In other words, the banks will lose less money than by receiving foreclosed properties that would have to be sold at a discounted price resulting in a greater loss.

This scenario is similar to a gangster putting a gun to someone's head and telling them to "buy, or else." But public outrage over the continuously growing size of not one but several stimulus packages has pressured politicians to exercise more control over how the taxpayers' money will be used, or will not be used by the banks and businesses receiving part of the bailout.

Government mandates that banks must approve loans and must wait longer to collect their repayment, yet must not evict people who cannot repay their obligations leading to further bank losses and expenses. Keeping insolvent banks operational merely prolongs the inevitable collapse due to the weakening of the banks and their inability to collect money owed to them from borrowers.

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