Why Is the Fed Letting Banks Boost Dividends?The news hit Friday that the Federal Reserve is allowing big banks to pay sharply higher dividends. I don't understand how the Fed justified that decision. And not just because the results of the so-called "stress tests" are secret.

At least our four biggest banks are insolvent, Adam Levitin explains at the blog Credit Slips. The banks' balance sheets only come out in positive territory if home equity loans made during the bubble years are valued at much closer to their face value than good accounting or even common sense would dictate. First mortgages are apparently similarly overvalued. This isn't some fantasy of Levitin's, by the way: Paul Krugman and many other experts have described our banks -- big and small -- as "zombies" with fictional balance sheets.

And it's not as if those balance sheets are free from other stresses. One big near-term danger is banks' potential liability for the mortgage and foreclosure mess. Settling that tab with regulators and law enforcement agencies supposedly will cost the financial industry $20 billion to $30 billion -- though who knows if there will be a settlement at all. Those numbers are big enough that Republican lawmakers worry that a settlement would render big banks insolvent. (As if they weren't already.)

In the medium term, banks also face a serious risk from the growing mass of lawsuits over mortgage-backed securities: There are several scenarios under which those suits and the buybacks the banks may be forced into could threaten their balance sheets.

So why are the banks being allowed to give away cash to their shareholders that would be better applied to shoring up those shaky, fictional balance sheets? Yes, bigger dividends means the big executives, who are also big shareholders, get to pay themselves even more "compensation," but I'm not cynical enough to imagine that's what motivated the Fed to give the OK. So what gives?

It's one thing to lack the political will to "nationalize" the banks temporarily, wiping out shareholders, but cleaning up the banks' balance sheets for real. It's another thing entirely to let zombie banks pay big dividends. Regardless of what it would have the rest of us believe, surely the Fed knows better than to think these financial emperors are wearing clothes.

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Dereck

Major Fraud Alert


The entire Federal Banking System under FirstGov has been "Consumed" and "Levied" by way of a Maryland State Circuit/District Court Ruled “Appropriation and Garnishment” of all Future Earnings prior to and after 2004 against Bank Of America by way of the F.D.I.C. Regulations Prohibiting failing Banks from Merging with other failing Banks between the Dates of 08/04/08 and 10/09/09.

Bank of America violated the 21st Century Act: Final Amendments to Regulation CC Section: http://www.federalreserve.gov/boarddocs/press/bcreg/2004/20040726/attachment.pdf

seeking reimbursement of Credit, Loan, and Finance Balances as a "Bank Entity" and not a "Nonbank Consumer" as specified on Pages 85 and 86.

The person they sued through a LLC. Debt Collection Company and Law Firm was the "World Fortune Owner" who "Counterclaimed" and won.

Now all Contracts of any Corporations (Including Employment) under the "Controlling Interest" of any Investment Bank Worldwide are "Null and Void", and are also under the stipulated Rules and Regulations of an "Closely-held S Corporation rendering all Employed under Legal Actions against “Domination”, and also means that "No Corporation can hold Shares" officially making every Stock Exchange on the Planet a "Ponzi Scheme" by default.

Businesses owned by the States (Public Corporations) are being sold Stock Shares by Corporations also under the Federal Banking System in this Worldwide "Ponzi Scheme". The World Fortune Company Merrick Inc. Sweden is dissolving Millions and Billions of Dollars from "All Levels of Government"in the U.S. of Financing based upon Years of "negligent inaction" involving this case.

The Federal Government has already been forced to discontinue supplying the Financing States use to pay their debts, Persons in Government Offices may want to begin to take their jobs more seriously, these are different times from 10 Years ago and you will not be accepted civil servants here just because you say you are here to do the right thing.

May 29 2011 at 12:31 AM Report abuse rate up rate down Reply
wmccorrigan

Well before 2002, it all started with the community investment act that required banks to make loans with few requirements. Standards went out the door. The democratic party motto was 'everyone should have a home whether they can afford it or not.' That and the encouragement by our democrats of the gmae and fmae to guarantee and securitize all these loans further undermined our economy. Now the corporations and the taxpayers must foot the bill for all the give-a-ways of our government. Hopefully we have seen the light and our congress will eliminate much of government and its spending.

March 22 2011 at 1:57 PM Report abuse +1 rate up rate down Reply
1 reply to wmccorrigan's comment
dgs755

Doesn't everyone get it ? The Fed with a couple of key strokes injects free money onto the bank balance sheets, so the banks can claim profits, hence pay bonuses, and it's all a fraud but to make it "look good" let's pay those shareholders some dividends so no one will question the credibility of the scamming banksters led by the Bernack. It's all so comical in a sense because if anyone other than a bank or failing corporation needs some electronic zero's , well that is Austerity !!!!! This whole crisis could have been fixed by giving citizens electronic zero's and then the bank's would have had their balance sheets fixed from deposits, citizens could have paid down debt, purchased new goods or for those not in debt, invested the money.
Instead we have QE2 that does nothing for anyone except drive up food and gas prices. We need to revolt.

March 21 2011 at 5:14 PM Report abuse +1 rate up rate down Reply
donut999

although it seems unpalatable that these same villians are allowed to raise dividends, a few things should be remembered. First, the move will be to zero allowed to a minor dividend which will not even come close to what they were paying a few years ago. Second, they have been restricted/punished as they should have been, and i am assuming only banks that have repaid tarp and got at least a B on a stress test will be permitted to do so. Finally, banks are still businesses, too. We can hate them, but someone needs to tell me what the alternative would be. so, they are in business and corporate business is about growth and dividends. would not matter if they were a bank or apple--the goal is to add value to your stock which adds value to your company allowing future issue of new stock for expansion, debt retirement--all the usual biz reasons. the smarter tack would be share buybacks which would attract much less flak and still give value to the shareholders. most shareholders though prefer cash to value.

March 21 2011 at 4:55 PM Report abuse rate up rate down Reply
donut999

most all the banks have been insolvent since this hit. unfortunately, necessity has swept it under the rug. if the FDIC did their job 2 or 3 years ago, they would have been falling like dominoes creating panic. lesser of two evils has been the approach. the bank approaches the fed window and asks could i borrow $1,000 at essentially zero interest and pledge as collaterol this 9 year old push mower? Fed says okey dokey, come back with a little newer weedeater and we will give you $1,000 more.

March 21 2011 at 4:38 PM Report abuse rate up rate down Reply
inasctg56

And as our economy recovers mortgage rates went up and our retirees will benefit from interest increases. Everyone wins under the dems economic policies and legislation.

March 21 2011 at 3:17 PM Report abuse rate up rate down Reply
inasctg56

And as those manufacturing paychecks come back into our communities and businesses, it creates demand for goods and services which leads to more jobs, our tax base returns, and the natl debt can be addressed more aggressively. The gop is cutting jobs and wages and making cuts at the federal level too soon. They were warned for 2011 and 2012 to make cuts in waste but not for job creation and yet they are not listening. The gop is also cutting jobs and wages at the state level and then handing it over to corporate tax cuts. Tricle down economics doesn't work - and let's the rich get richer on the backs of average americans.

March 21 2011 at 3:15 PM Report abuse -1 rate up rate down Reply
inasctg56

I suggest you all go over to Daily Finance and read even more reports on our economic recovery. We have had over 19 months of gains in our manufacturing and exports due to better trade agreements and enforcing existing trade laws. Obama's goal of doubling our exports is working. With every 10% gain in exports equals a 7% gain in jobs. Unemployment is going down with forecasts for 2011 of over 2 million jobs. This is what happens when you have a president working with our manufacturing sector instead of refusing to meet with them like Bush did. The gop supports corporations taking jobs overseas so they can make record profits. The dems passed legislation for 100% write offs on improvements made in THIS country and it is working.

March 21 2011 at 3:11 PM Report abuse -2 rate up rate down Reply
inasctg56

reply to d1k2van: Our forefathers set up the federal reserve as a separate entity of our government for good reason - so that politics were not involved in what was the good of the country. And the gop is fighting for congress to control the federal reserve. The gop is like old Mr. Potter in the movie It's a Wonderful Life - they just want to get their hands on every aspect so corporations can make more money at the expense of workers.

March 21 2011 at 3:06 PM Report abuse rate up rate down Reply
smith65791

Golly Dang! Reckon the Fed wants people to buy bank stock?

March 21 2011 at 3:03 PM Report abuse +3 rate up rate down Reply
1 reply to smith65791's comment
jkennedy806

I wouldn't buy any product from a bank. Of course Citi has been under 5.00 now for 2 years running. So the bright financial people of Citi the same morons that brought US CDO's, sub primes, card sharking 25% credit card rates and the 5.00 ATM fee now want US to buy their worthless stock. Here's what I predict what's going to happen. In about 3 years it will be declared worthless and you will loose your shirt.

March 21 2011 at 3:23 PM Report abuse rate up rate down Reply