Returning Bailout Money Just a SideShow
Treasury will allow 10 of the nation’s largest banks to repay $68 billion in government bailout money. One of them, JPMorgan Chase (JPM) quickly put out a press release quoting CEO Jamie Dimon as saying the return of his $25 billion was “the right thing for our country.” Sounds encouraging…and patriotic, no?
The only problem, says Charles Ortel, managing director, Newport Value Partners, a research firm in New York City, the money is just a drop in the bucket as far as what the government has shelled out to prop up the economy—and it’s not exactly working yet. “The government has spent trillions and yes, it’s nice to get some of it back, but it’s a distraction from the main event,” says Ortel. “Private sector jobs have fallen off a cliff. The country and homeowners and the government are awash in debt. The government has the power to change the debate on any given news cycle by pointing to one or more of its ‘successes,’ but I’d feel a lot better about this …if there were better accountability.”
Ortel’s beef is that the government is not acting like a good investment manager. He sees a “headlong rush away from the principles of good investing principles.” For instance, any shrewd investor plans for an exit strategy. How, he wonders, will the government shed a $50 billion stake in GM or a $45 billion stake in Citigroup (C)? Moreover, government says it’s not going to meddle directly into the business affairs of these companies, from automotive to insurance (save for executive compensation matters, and that too is creating more chaos).
“You’ve got to have control of an investment and here they are putting money into companies where they say they don’t want control,” he continues. “That creates ambiguity, waste, conflict and heartache. There’s no accountability, no alignment of management, no incentives.” Ortel says an independent business commission should be formed to evaluate the government’s actions in trying to resuscitate the economy and prop up failing businesses.
He’s not alone in thinking that the return of bailout money is just a pubic relations sideshow. Joshua Siegel of New York's Stone Castle Partners--which specializes in bank investments, with $3.1 billion under management--says it might be prudent for some banks to return the money, but he too sees the early pay-backs as a game of “perception creating business reality.”
“Banking is all perception,” he says. “It’s the ultimate confidence business. The question isn’t whether banks have enough capital to pay it back. The question is do they need government money and can they replace it with private money.”
That would be better news. As wrong-headed and greedy as a lot of money managers and market players have been in recent years, they're a far might better at running business than politicians.