Village of Arkport Blog

In the May 26, 2008 issue of Fortune, Allan Sloan, rails banks and large brokerage firms for borrowing to prop up capital reserves while at the same time paying dividends to stock holders. See “The Bucket Fillers” at the end of the article.

This is the equivalent of borrowing to give it away. Something people do at Christmas and then pay back over the coming year or years. That’s a attempt to buy love, and the financial firms are attempting to buy shareholder love so they won’t dump the stock. The difference to me is that these are for profit firms that are taking depositors money and giving it away.

The real estate market in Arkport and many other markets are reeling in part from practices underwritten by the large financial companies. I really have to question what’s going on at these companies. The lapses of judgment and business practices that contributed to the real estate and economic mess that we are in now, seem to continue. Sloan calls for these firm to take a remedial course in Common Sense 101.

Citi received a $7.5 billion capital infusion from The Abu Dhabi Investment Authority (ADIA). It’s current annualized dividend is $6.9 billion. It’s hard to argue, with Sloan when he says that they are borrowing to pay dividends - at an 11% interest rate.

We have to wonder how this affects you and me. The banks have tightened mortgage lending requirements, are lousy at dealing with people experiencing trouble paying their mortgages, slow to respond to short sale offers, and expecting government bailouts for their losses. There practices are putting a throttle on the economy. It appears their business model includes keeping profits and socializing losses through government bailouts.

Sloan asks, “Why would you fill a bucket from the top while letting water gush out the bottom?” Good question. Think about it.