Our resident Phil Gram impersonater isn't going to like this story, but I couldn't stop reading it. I'm sure Andy Beal would be considered a pessimist. He thinks Geithner's plan won't work and things are going to get much worse. But if you read between the lines, he's also busy lending and buying toxic assets (with his own money) and, of course, he has a vested interest in talking down those assets. It's only 97% gloom.
I'm posting Joe Weisenthal's summary because it contained some additional information and I thought his take on regulatory failures was provocative. Yes I know Weisenthal is a conservative kook and I often call him out on his dopey political views, but in this case I think he has a valid point.
One reason I like to post this stuff here is because the commentariat on financial sites tends to skew much too libertarian/Republican for my tastes. I'd rather read what DUers have to say about it.
From
http://www.businessinsider.com/texas-billionaire-andy-beal-half-the-countrys-banks-could-go-bust-2009-4">clusterstock:
Texas Billionaire Andy Beal: Half The Country's Banks Could Go BustTexas billionaire Andy Beal isn't a household name. He's best known in some circles as the main subject of the book
The Professor, The Banker and the Suicide King, which is about his quixotic $100,000-per-hand poker match against many of the game's top pros (he got his clock cleaned).
Perhaps part of the reason he's an unknown is that even though he's a banker, he retrenched his business during the credit boom, even going so far as to lay off employees.
But now that the bubble's over, he's stepping on the gas pedal, buying distressed loans, hiring and lending more than ever to businesses that have nowhere else to go.
http://www.forbes.com/2009/04/03/banking-andy-beal-business-wall-street-beal.html">Forbes: By September 2004 Beal Bank's assets had climbed to $7.7 billion. Then Beal stopped buying, letting his loans run off. By September 2007 assets had shriveled to $2.9 billion, one-fifth of which was cold cash. He was worried that consumers had taken on too much debt and money was being lent to companies for next to nothing. "Every deal done since 2004 is just stupid," Beal says.
He began by pulling back from home loans--even those guaranteed by Fannie Mae and Freddie Mac Beal thought the two quasi-government agencies were over-leveraged. When staffers mentioned their guarantees in deal presentations he would fire back that these guarantees were "worthless."
Not surprisingly, given the incompetence of regulators, it was his bank that drew suspicion.
In late 2006 he sold $74 million of preferred stock although he had no immediate use for the proceeds. He says he couldn't resist the "stupidly mispriced" terms--as low as Libor plus 1.7 percentage points for 30 years. He wanted as much money available when the boom turned to bust. With the extra money the bank could pay off nearly all its depositors with capital on hand--nearly unheard of in the history of banking.
Then came a shocker: Amid one of the most reckless lending sprees in history, regulators focused on the one bank that refused to play along. Beal's moves confused and worried them, and so they began to probe him with questions. "What are you doing?" he recalls them asking. "You're shrinking yetyou're raising capital?"
Says Beal about the scrutiny, "I just didn't fit into any box." One regulator, the former head of the Texas Savings & Loan Department, Charles Danny Payne, says, "I was skeptical at first, but I've gained a lot of confidence over the years," adding that Beal has an "uncanny ability to sniff out deals."
Next, the credit rating agencies started pestering him about his dwindling loan portfolio. They never downgraded him but scolded him for seeming not to have a "sustainable" business model. This while their colleagues were signing off on $32 billion of bum collateralized debt obligations issued by Merrill Lynch.
It's really quite amazingly backwards this story is. To some extent, it even gives the lie to the idea that the problem was a lack of regulation. Turns out the credit agencies and the regulators were looking out for the abnormal and the unusual. They weren't just sitting behind their desks twiddling their thumbs reading Chris Cox's dogeared copies of
Atlas Shrugged.
http://www.businessinsider.com/texas-billionaire-andy-beal-half-the-countrys-banks-could-go-bust-2009-4">More...
Here's another excerpt from the
http://www.forbes.com/2009/04/03/banking-andy-beal-business-wall-street-beal.html">Forbes profile:
[Beal] thinks the government is going to be "disappointed" by its various programs to revive lending. He says Treasury Secretary Timothy Geithner's new plan to guarantee loans to buyers of toxic assets won't lead to many sales because the problem isn't liquidity but price. They are not low enough. Half the country's banks--4,000 in all--would be bust, he says, if they marked their loans to what the loans would fetch in an auction. He says banks are fooling themselves by refusing to mark busted assets down.
"Banks are on a prayer mission that somehow prices will come back and they won't have to face reality," Beal says. And that reality, according to Beal, is going to get a lot worse. "Unemployment is going over 10%, commercial real estate hasn't even begun collapsing and corporate credit defaults are just getting started," he says. His prediction: depression, without bread lines this time, thanks to the government safety net, but with equal cost to society.
As for the cause of this mess, Beal points a finger at the government for giving its imprimatur to just a handful of credit rating agencies, then insisting that money market and pension funds buy only paper with top grades. He also blames government for luring people into debt by backing everything from bank deposits to Fannie and Freddie to student loans.
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
