There is an illuminating–and admirable piece in The New York Times that has an unsettling vibe of the past: how financial manipulators are already circling to try to profit from the distress of the economic calamity that many of them actually helped create…and maybe even set the stage for the great next crisis down the road:
No one seems to want to own a business in this dusty, windswept corner of rural America, population 370, with its crumbling sidewalks and boarded-up storefronts.
Except, that is, for J. Christopher Flowers, a media-shy New York billionaire who last year bought the First National Bank of Cainesville, one of the United States’ smallest national banks.
Mr. Flowers, a private equity manager, has no particular love for rural Missouri; in fact, he has never set foot in Cainsville. Rather, he wants to use the national bank charter he picked up in this farm town to go on a nationwide buying spree.
With that charter in hand, Mr. Flowers plans to take over a handful of large struggling banks, casualties of the economic crisis. In some cases, he hopes, the federal government will help.
To its credit, the Federal Reserve Board, perhaps gun-shy that it sat by and even aided the people who sparked the current crisis, is not crazy about Mr. Flowers and his ilk. No matter, Flowers and his folks are trying to change the rules anyway because there is a lot of money to be made as vulture of the future:
To push their case at the White House, the Treasury and the Fed, Mr. Flowers and others in his industry have enlisted an all-star cast of advisers, lobbyists and lawyers. They include H. Rodgin Cohen, chairman of the Sullivan & Cromwell law firm and Wall Street éminence grise, and Randal K. Quarles, a managing director of the Carlyle Group and a Treasury under secretary in the administration of President George W. Bush. Part of their strategy, Mr. Flowers said, is to persuade the Treasury secretary, Timothy F. Geithner, to pressure the Fed to back down.
And they certainly aren’t waiting around, preferring to manipulate the system as it exists now:
They have formed so-called club deals, in which teams of private equity firms and other investors each buy up to the legal limit of a bank — about a quarter or a third, depending on the type of bank — with their individual pieces adding up to 100 percent control. IndyMac, the failed California bank, was sold by the Federal Deposit Insurance Corporations last fall to one such club, which includes funds controlled by Mr. Flowers; the hedge fund billionaires George Soros and John Paulson; and Michael S. Dell founder of the Dell computer company. The investors are barred from acting in concert to, in effect, take control of the bank — an unwieldy arrangement but one that regulators insist they can enforce.
As part of the IndyMac deal, the F.D.I.C. agreed to take most of the risk from future losses on loans acquired by the partnership — leading Mr. Flowers to quip at one investor forum in New York in January that “the government has all the downside and we have all the upside.”
Very funny. We, the taxpayers, are thrilled to be at your service, Mr. Flowers. Line your pockets with our hard-earned money.
Though, in fairness, Mr. Flowers does give a bit of a proper view of his standing in the world:
He was even more blunt when he spoke to an industry group in New York earlier this year. “Lowlife grave dancers like me will make a fortune,” he predicted.
Low-life, indeed.
