Monday, June 29, 2009

Not Again

"Now regulators are letting private equity [PE] firms, which invest in all kinds of companies, control banks. The worry: [PE] will pillage the banks' resources to fund their other operations or investments. ... Back then [during the Depression] several banks failed when owners diverted resources to prop up other holdings like retailers and manufacturers. ... Critics fear [PE] firms--which collectively own hundreds of companies--will succumb to the same temptation as bank owners in the '30s. 'If I've got a bank, and I have a business that's going down, where do you think the bank funding is going?' says Rochdale Securities bank analyst Dick Bove", Peter Carbonara at BusinessWeek, 15 June 2009.

We learn nothing. I saw S&Ls prop up real estate investments about 30 years ago. Amazing. That PE firms can buy banks amazes me. As Yves Smith at Naked Capitalism would say, is pillaging bank resources a bug or a feature?

1 comment:

Anonymous said...

When it first came up I thought that the Fed was just thrashing around for any solution... everyone else had been abused and tapped...

From the Economist in Aug '08...

Will private-equity firms ride to the rescue of banks? Buy-out firms are unlikely saviours, but private equity’s $450 billion war chest is big enough to fill Western banks’ capital shortfall. There are few other sources of ready capital. Sovereign-wealth funds have been badly burnt; banks cannot easily raise equity in public markets; and the atrophy in many of the biggest lenders leaves them in a poor state to buy the weakest.