David Hoppe

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:: Bankers don't make change

We pick up the tab

By David Hoppe

Here's a nugget from a recent issue of the Sunday New York Times. In Spain, it seems the banking laws go back 500 years, to a time when religious orders operated lending societies. As a result, Spanish banks are run as nonprofit institutions. They have no shareholders and they pay no dividends.

What do they do with the money they make? Profits are channeled to "the public good," a destination the banks are free to define in just about any way they want.

According to Andrew Ferren, in the Times' Travel section, this used to mean helping farmers during those times when the crops didn't come in -- depriving the Spanish, I guess, of a favorite American folk villain: the long mustachioed banker bent on foreclosing the family farm.

Today, Spanish banks use their extra cash to support a wide array of projects, including medical research, reforestation efforts, scholarships, historical preservation, art exhibitions and the creation of cultural centers devoted to exhibitions and programming that might be missed by larger, more traditional institutions.

Needless to say, this is a different approach to banking from the one we are now trying to save in the United States. Here, banks are all about shareholders and dividends. And when they find themselves red-faced about all the bad loans they've made and the investments that didn't pan out -- well, that's our problem.

When it comes to banking in America , the public good means we - the public, that is - make good all the mistakes, errors of judgment and downright chicanery bankers have perpetrated.

Our congress took Treasury Sec. Hank Paulson at his word last fall and directed $700 billion of our money to bailing out banks. Paulson said that the world as we know it would come to an end if this didn't happen, and happen fast.

What none of us understood was that Mr. Paulson has a seemingly childlike gift for overstatement. What he really meant was that the world as he knew it was in peril.

Roughly three months have passed since congress promised the so-called financial services industry more money than has been spent in five years in Iraq. Two things have resulted. The first is that the world as Sec. Paulson knows it has not come to an end. And the second is.well, we don't know the second part yet.

That's because the banks refuse to say what they're doing with our money. In December the Associated Press asked 21 banks that received billions of tax dollars four questions: How much of the money have you spent? What was it spent on? How much is being held in savings? What's the plan for the rest?

None of the banks would answer these questions.

But it appears the banks are using our money to help keep the world as they've known it intact. The AP found that banks receiving tax dollars have been paying for executive home security systems, chauffeured cars and, get this, personal financial advisors. Yes, Wells Fargo in San Francisco gives top executives $20,000 each to pay for personal financial advice. At Goldman Sachs, they pay $233,000 per executive for leased cars and drivers. JP Morgan Chase's chairman James Dimon used a private jet last year to commute between his home in Chicago and New York. Citibank is paying for the naming rights to the new Mets stadium.

Since congress considers our banks too big to fail, bankers have not been held to account the way executives from the Big 3 automakers were. Congressmen made fun of the automakers' corporate jets when they asked for a bail out. Not only have bankers been exempt from this form of fun, they haven't even had to ask for our dough. Paulson simply demanded it; congress went along.

Come to think of it, the banking bail out was played just like the run-up to the war in Iraq. In both cases, dire warnings of imminent disaster were followed by expressions of bi-partisan unity of the "there are no Democrats or Republicans here - just Americans" variety. This sounds patriotic, but experience indicates that a government without Democrats and Republicans is actually more of a problem than a solution. Something to flee rather than embrace because, at that point, the people who should be asking questions and challenging the answers stop paying attention.

Anyway, when I read about the way banks behave in Spain, I thought: This is great. Followed by: It can't happen here. That's because we taxpayers aren't paying to change American banking. We're enabling it.