Once upon a time, markets in this country functioned based on economic Darwinism. It was pretty simple: the strong survived, the weak perished and the strong were then rewarded by feasting on the remains of the economically inept. In what is sure to be the first of many intrusions from the various regulators in this dynamic, the FDIC wants to tilt the scales in the game of Hungry Hungry Hippo resulting from forthcoming bank failures. The FDIC estimates that up to 780 banks are going to bite the bullet over the next 24 months. So far PE firms have been having a field day snapping up failed institutions. But now the powers that be at the FDIC are concerned that the likes of Blackstone and Fortress are succeeding a little too much in their quest to carry out the principal mandate of private equity firms and it might be time for someone else to have a go. In their mind, this sort of thing should really be kept in the banking circle of trust and PE firms are outside the circle. The FDIC is reportedly considering “encouraging” stronger banks to step into the ring and take a piece of this pie. At the end of the first inning the score is Creeping Regulatory Intervention 1; Adam Smith 0.
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Who the fark is this Greg Michaels person and why is an economic illiterate working at Dealbreaker?
@1- and the evidence of economic illiteracy would be where?
a) Why is it a violation of economic Darwinism for big, strong banks to buy little, failed banks?
b) For decades PE firms have been restricted from buying banks – unless they want to be treated as bank holding companies. If anything, the FDIC only recently loosened the rules to bring new capital into the banking sector.
“principle mandate”
You meant:
principal mandate
By the way, this was boring. Throw away dogmatic statements and make it interesting.
This post is just stupid. PE firms make money by leveraging firms up, and is that really what we want to happen to failed banks right now? What’s more, the last thing I want to see happening is a PE firm buying a bank and then pressuring it to finance its portfolio companies on the backs of depositors…
2 No offense, but this guy sounds like he was the President of the Ayn Rand Fanclub at Penn State and landed here when he couldn’t find a job in banking (probably after crying himself to sleep a few nights). His idealistic views are presented as dogma, when in fact there are two sides to this argument. See 3, for example.
How is Cerberus doing these days re: GMAC? Is that the model the others in PE are trying to follow? Good idea or bad idea? Discuss.
http://blogs.wsj.com/privateequity/2009/05/22/cerberus-gmac-deal-rumors-of-my-death-are-greatly-exaggerated/
5 In the case of PE, the money will be made by buying the bank sans toxic assets (those having been assumed by the FDIC) and cutting costs here and there, which is usually very easy in any industry and has no short term consequences. They will then sell it to a stronger institution. You see it in the United Bank transaction. No wonder Sheila B. wants to circumvent that middle step.
Greg- dont worry, if they answer you at all it means they like you.
You know, like lil girls in the sandbox. At least you put your name to it unlike us “guest”.
The story kinda sucked but Bess and EP are guilty of the same sometimes.
I drink your milkshake!
So is this a Latoya/Michael EP/Greg Michaels thing?
You keep on writing Greg. Many readers and commenters on this site put their low IQs to use by nearly destroying the Free World financially. You just keep writing on and remember that curs nip at the heels of champions.
~The Ghost of Mark Twain
@11- that’s my guess
Economic darwinism in this country is a myth. Biz has always had a hand out for sibsidies–see Rds in the 19th C and everyone today.
It just might be in the seller’s interest to encourage more buyers to participate in the process, especially those who might see strategic synergies. And as the proud owner of insolvent banks, the FDIC can do whatever the fuck it wants with its assets.