Is O'Reilly looking out for the banks?

By A.J. DiCintio

Recently, Bill O'Reilly closed a Factor segment by repeating his support for the TARP program, which, he asserted, was a necessary action that not only saved the nation's financial system but also enriched government coffers as banks repaid the loans with interest.

Well, if that thirty second exposition on America's bank problem is correct, those of us who believe reform of the banking industry represents one of our nation's crucially important tasks can stop wasting our time.

After all, O'Reilly's line of thinking leads to a conclusion of "no problem" if banks once again become deathly ill, because it asserts the cure lies in a simple, benign potion composed of hundreds of billions (even trillions) in loans and a policy that indefinitely allows the patients to borrow huge sums from the Fed's discount window at nearly zero interest.

Now, if you believe this medicine sounds too good to be true because it violates the cosmic truth that you can't get something for nothing — the same truth, by the way, that makes a liar of any person who claims to have invented a "perpetual motion machine" — you are exactly right.

Moreover, you find yourself in very good company — to be exact, that of true conservatives, honest independents, and sensible libertarians, especially those who are expert in the workings of the financial industry.

Here's what those knowledgeable people tell us:

First, that the banks, the government, and the power structure of both major political parties were fundamentally involved in causing the financial mess and thus have every incentive to hide the truth about TARP's true cost.

That's why shills for TARP brag about how much the government has made but, just to give one example, have nothing to say about how the Fed's "banks only, please" near-zero interest rate and its mad dollar printing have sent commodity prices rising and thus have sucked hundreds of billions from the pockets of John and Jane Q. Public.

Second, that TARP has solved neither the problem of greedy, incompetent bank executives nor of the rotten mortgages they trafficked in and which still stink up balance sheets they were entrusted to protect.

Third, that the previous realities don't bode well for the nation's banking and general economic future. And if that's true, the future looks even bleaker than the present for John and Jane, who haven't yet finished picking up the tab for the current debacle.

Yes, it's an enormous irony, indeed, that with respect to the banking problem, Bill O'Reilly puts himself on the side of the rich and powerful, a class that includes politicians of both parties who once again have failed to "look out" for "the folks" who ultimately pay the economic, social, and psychological price to clean up a mess made by the ruling class.

It's fair to say, however, that we shouldn't ask O'Reilly to change his mind about the unconscionable bank bailouts without offering an alternative solution.

So, to present him with one that would have looked out for the folks (i.e. the citizens who are the United States of America), we turn to a few of the open-minded experts referred to above.

Let's begin with Barry Ritholtz, CEO of Fusion IQ and indefatigable blogger at The Big Picture (www.ritholtz.com), who recently wrote that Bank of America's eager acceptance of Warren Buffett's steeply demanding $5 billion investment proves the failure of the Wall Street bailouts —

"The massive injections of liquidity temporarily salved the day-to-day operations of banks, but they did not repair the more profound troubles. Indeed, pouring billions into nearly identical management teams that mismanaged risk, overleveraged exposure and drove banks off the cliff in the first place was an invitation for another crisis."

Mr. Ritholtz's alternative to the bailouts?

He would have the government take over failed banks and as its first act fire the entire top level management that caused the problem. Ritholtz's politics aside (for the record, he describes himself as a "data-driven," independent minded pragmatist), there isn't an honest conservative, independent, or libertarian who wouldn't vigorously applaud the kind of accountability he insists upon.

Next, Ritholtz would excise every piece of rot from a failed bank's holdings and sell each one at whatever price it commands in the marketplace, an act whose eschewing of gimmicks, "corporate welfare," smoke and mirrors, and kicking the can down the road ought to put a smile on every decent person's face.

Having restored a bank to health, he would return it to the private sector, where, everyone but Marxists and rabid liberals will agree, it belongs.

Who takes the hit in such an approach? Certainly not taxpayers and consumers but the bank's stock and bond holders, whose pain represents the best deterrent to keeping arrogant buffoons from becoming banking executives and CEO's for a while (common sense demands we always give proper acknowledgment to the "short memory" aspect of human nature).

Making them all the more disgusting, those buffoons are hypocritical capitalists. But they are not the only ones, a reality beautifully illuminated by an observation John P. Hussman (www.hussmanfunds.com) made with respect to Warren Buffett's statement that his recent investment is "a vote of confidence, not only in Bank of America, but also in the country."

Here is how Mr. Hussman revealed himself a man of courage and integrity:

". . . to be specific, [Buffett's investment is] a vote of confidence that the country will bail out Bank of America in any future crisis. We should all hope [Buffett] is successful — provided there is no future crisis — and we should equally hope that Buffett loses the entire investment otherwise."

Finally, there is the question of what fact-driven financial experts have to say about Fannie and Freddie.

While Republican leaders shield the banks and place all blame for the mortgage mess on government agencies and virtually every Democrat shields the agencies, placing all blame on the banks, the non-partisan experts tell the truth.

Here, for instance, is how Chris Whalen of Institutional Risk Analytics assesses the question of culpability. (Quotation thanks to John Mauldin, www.johnmauldin.com.)

"Paul Krugman, Bob Kutner, and Frank Portnoy, among others, are right when they say that Wall Street's greed drove the mortgage debacle. But they forget that Fannie Mae and Freddie Mac were considered part of Wall Street until the collapse of Lehman Brothers and Bear Stearns in 2008. You cannot separate the private and public sector contributions to the crisis; it was a true partnership, but one that starts with the government intervention in the housing sector with the New Deal."

To conclude —

Bill O'Reilly has courageously used The Factor to give exposure to news, analysis, and opinions the liberal-dominated "mainstream" media ignores or belittles.

With domestic and foreign economic issues certain to dominate the news for the foreseeable future, he may perform his greatest service to the nation by giving weekly airtime to one or more of the financial experts mentioned in this piece.

They may or may not change his mind about TARP. But their brave, insightful, "spinless" commentaries about financial issues are certain to open and enrich the minds of an ever increasing audience that will be drawn to watch a program hosted by a man who to his everlasting credit has managed to succeed famously in the big time while not turning his back on what he learned in Levittown.

© A.J. DiCintio