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Bailout? Never Mind

From Alhambra friend Doug Terry:

Though only a small percentage, many small banks around the country have rescinded their original requests for a piece of the government’s $700bn bank bailout funds.  The presidents of these banks have concluded that they would prefer no assistance to the prospect of giving our elected officials a seat at the board room table.

Michael Ross, President of Fidelity Bank in Dearborn, Michigan recently turned down $29m in previously requested funds.  He explains the reasons for bailing on the bailout:

But as details emerged, the deal didn’t look so good. For Fidelity, taking the money would mean the government would have owned about 25 percent of the company’s outstanding stock. Then Congress and the White House could start calling the shots, Ross said. He remembers the government’s failure overseeing Freddie Mac and its sister company, Fannie Mae, the two housing companies so badly mismanaged they were taken over by the Bush administration.

“These are the guys who brought you Hurricane Katrina. These are the guys who were supposed to be watching Fannie and Freddie,” Ross said. “I’ve not seen anything like this, where they really are talking about nationalizing banks.”

If you take government funds, you get politicians telling you how to run your business:

Much of the criticism about the bailout has focused on the lack of oversight, which allowed banks to take money and refuse to say where it’s going. Wall Street executives, who make millions of dollars and enjoy lavish perks like private jets, earned the ire of consumer watchdogs who said taxpayers were getting a raw deal.

But some community banks, which had little or nothing to do with the subprime mortgage crisis, say the deal didn’t look great for them, either.

Congress wants banks to make loans, so businesses can expand and people can start buying houses again. But lawmakers also want them to make only trustworthy loans. But there are only so many good loans to make in a weak economy with high unemployment.

Explaining that to investors is easy. To politicians, it might looks like you’re hoarding taxpayer money.

“Then what? Then they have a guy at our board meeting?” said William Campbell, president of Pamrapo Savings Bank, a Bayonne, N.J., bank that walked away from its $11 million bailout application.

Most of the small banks around the country did not get involved in sub prime lending and are not in trouble. This should be a great time for them. Their largest competitors should be out of business and they should be gaining market share. Instead the government propped up their competitors with cheap capital. Kudos to Michael Ross and the other small bankers who are rejecting the government handout. If I lived in Dearborn, I’d be down there opening an account.