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Friday, October 10, 2008

Wachovia's loan to Republicans

  Democratic Party propagandists are abuzz at the revelation that the National Republican Congressional Committee has borrowed $8 million from troubled Wachovia Bank as the company is in negotiations to be sold.
  That's intriguing for several of reasons. The loan follows partisan maneuvering as Republican leaders in Congress fought a GOP-led rebellion over whether and how to bail out bad loans at Wachovia and other banks. Did the loan have a role in convincing reluctant right-wing reps to switch their votes and back the bailout? That's worth following.
  But the people who wrote this up at SouthernStudies.org and DailyKos.com aren't too familiar with banking, and they ran up some blind alleys instead. (Addresses posted below for cut & paste if you want to go there.)
  The articles portray Wachovia as a failing bank that's funding the GOP while it's stiffing its own customers. They use Wachovia's freezing of the Common Fund, which manages funds for hundreds of small colleges, as an example.
  But Wachovia's role as stern trustee for an over-extended investment fund during a collapsing securities market doesn't relate to its role as a lender to solvent borrowers. Even under threat of bankruptcy, banks need to keep lending to well-collateralized business clients, homebuyers, credit card users and many others, or they'll die. If the GOP pays its bills, the loan in itself is no smoking gun..
  The articles also miss the partisan complexities in the struggle between Citigroup and Wells Fargo & Co. for control of Wachovia. Briefly, Citigroup (like other Wall Street firms) is run by Democrats who raised piles of money for both Hillary Clinton and Barack Obama (and John Edwards, too.) 
  By contrast, the people who run Wachovia, like most provincial bankers, are Republicans; the articles note that, but they miss the subtlety that Dick Kovacevich, the ex-Citibanker who runs Wells Fargo, also tends Republican (he backed McCain in the primaries), though he's given lesser sums to powerful Democrats like Sens. Chris Dodd (D-Conn.) and Max Baucus (D-Mont.)
   Does the fact that Citi is Democratic while rival suitor Wells trends Republican have anything to do with Wachovia's GOP loan -- or to the fact that Wachovia CEO Robert Steel double-crossed Citi and decided to support Wells as Wachovia's buyer?
   Plus, the authors confuse Federal Deposit Insurance Corp. insurance with taxpayer aid. FDIC is a government agency, but it's funded by banks. When banks have to pony up more insurance, it eventually costs their customers, corporate as well as consumer; but that doesn't make the Citi proposal a taxpayer bailout.
   Bottom line: Wachovia in extremis lending to Republicans is worth another look, but not a rush to judgment. 

Daily Kos propaganda:
http://www.dailykos.com/story/2008/10/9/144138/991/200/625265

Original Southern Studies article:
http://southernstudies.org/facingsouth/2008/10/investigation-how-did-republicans-get-8.asp
Posted by Joseph N. DiStefano @ 8:48 PM  Permalink | 1 comment
Comments   
  • 0 like this / 0 don't   •   Posted 1:45 PM, 10/13/2008
    I've spent a lot of time trying to understand what is going on with the financial crisis. One thing that's become clear to me as a Democrat is that both the Republicans, Democrats and both the Clinton and Bush administration share responsibility for the current crisis. I would say that Republicans have a slightly greater record of supporting some of the government actions that created the environment that enabled this to happen but not significantly. The Federal Reserve, SEC and Treasury Sec. were definately too slow to react. I would say that I believe the partisan bickering that has been going on for the last 28 years is not what is best for the country and has not produced good governement. The main issue that I have now is that the Republicans haven't come to terms with the failure of deregulation and limited oversight as an economic philosophy. The Republicans have been preaching that there is too much regulation and oversight and that the cost is more than the benefit provided. While Republicans never called for no regulation, they'd have to admit that they undervalued regulations and we can see the cost of that today. We would be best served if the finger pointing stopped, Republicans and Democrats worked together to figure out the correct level of regulation and oversight together, and that they find a balance that can gain bipartisan support. I'd also like to see an investigation of the firms that were involved in same of these credit default swaps. I understand that theye weren't regulated but something still seems fishy. It does not sound like a good business decision to sell insurance for risky sub prime backed mortgage securities and have little of no cash reserves to back them up. It sounds like a scam. I'd like to see the government go after the revenue made on these and the people who sold them.
    — MikeP


1 comments
About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column in the Philadelphia Inquirer. Joe has been a member of Bloomberg LP’s New York Finance Team, wrote the book “Comcasted,” taught writing at St. Joseph’s University, and studied economics and history at Penn. Reach Joe at 215-854-5194 and JoeD@phillynews.com
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