Reform Is Needed at the FDIC
NEW YORK (TheStreet) -- Wal-Mart (WMT) is often criticized because when they put up their store in a small community, they drive out small businesses and mom and pop stores which cannot compete on price. Nevertheless, Wal-Mart still pays taxes and has a cost of capital, so they cannot go everywhere.
Imagine if a Wal-Mart like competitor to small business existed that had virtually unlimited resources, paid no taxes, and had a 0% cost of capital. No small business could survive if such an entity targeted a particular business or set of businesses. Enter, the FDIC!
For more than a year, I have written blogs criticizing the Federal Deposit Insurance Corporation's approach to America's Community Banks and what I have termed the "Unholy Washington-Wall Street Alliance" (see, for example, Health Care Bureaucracy May Be Like FDIC and Where is the Outrage II. In one blog, I observed that if she wasn't careful and continued such policies, when the history of this depression is finally written and analyzed, Shelia Bair would be portrayed as a government bureaucrat whose policies and practices deepened the depression.
My colleague and I recently wrote a blog entitled Moral Hazard at the FDIC in which we observed that, in the case of the disposition of the failed Corus Bank assets, among others, the FDIC had now become a private sector competitor, had chosen Wall Street partners and provided subsidies to them, and had assumed the role of entrepreneur and risk taker.We observed through our models that, in the FDIC's resolution of the Corus Bank assets, only under a significant rise in real estate prices was the recapture of FDIC insurance funds greater than if they just held the assets or sold them at current values. In a Sept. 8, 2010 Los Angeles Times piece (Downtown L.A. Condo Developer Takes on Investors, FDIC by Roger Vincent) we now learn that the FDIC and the Starwood investor group are fighting with Hassan "Sonny" Astani, a real estate condominium developer in Los Angeles. In an interview, Mr. Astani stated: "I face an unholy alliance between government and Wall Street." Corus Bank was Mr. Astani's lender on his condo project in downtown L.A. When Corus failed, the FDIC stopped funding his project which was 95% complete. So, Astani auctioned off 77 units he had completed to garner enough cash to finish his 30-story project near the Staples Center. But, Starwood and the FDIC objected. According to L.A. City Councilwoman, Jan Perry, this is "a showdown between a local developer trying to finish a big project and high rollers with federal backing determined to grab his $260 million project at a discount."
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV