We received a lot of feedback from readers last week when we covered the news that Associated Banc-Corp planned to send a group of its employees on a trip to Puerto Rico and TCF Financial Corp. had already sent a group of its employees on a trip to Mexico.

As you may recall, the trips were intended to reward some of the banks' top performers.

The public outrage about the banks was fueled by the fact that Associated had received $525 million and TCF had received $361.2 million in assistance from the federal Troubled Asset Relief Program (TARP).

Many people questioned how the banks could, on one hand, receive taxpayer assistance, and on the other hand, send their employees on lavish trips.

The outcry became so intense that Associated chief executive officer Paul Beideman later decided to cancel his company's trips.

However, not everyone was outraged by the banks' behavior. In fact, one financial expert in Downtown Milwaukee called to scold me for media coverage of the trips. I found his viewpoint fascinating. So, I asked him to write his comments and e-mail them to me for consideration.

My friend does business with the banks in town. To protect his interests, I need to keep his identity secret. I don't know if I agree with him, but I do feel it is instructive to allow him to explain his contrarian point of view, because it adds some context to the complex issue that has not been otherwise provided.

His remarks follow:

The mortgage crisis was caused by the banks. The credit crisis was caused by the banks. We were forced to bailout the banks.

These are easy things to say and they've been repeated often enough to have become believable. For the media, it makes a strong, simple story -- perfect. For politicians, it makes a strong, simple sound bite -- again, perfect.

Unfortunately, America has been misled. In truth, the mortgage crisis was caused by some banks. The credit crisis was caused by some banks. We were forced to bailout some banks.

Ironically, many of the worst offenders were not really banks at all. They were investment banks -- think large, sophisticated stock brokerages. They are very different from your local bank, but it's easier just to call them all banks, even if it is inaccurate.

Even when you lump true banks and investment banks together, the number of problem companies is very small. The vast majority of banks in this country remain quite sound. The real travesty is that even the best banks have been swept up in this campaign of misinformation. Our most evident local example is Associated Bank.

Associated has not faced the severe loan problems experienced by even some very good banks. It has been profitable throughout the current downturn and its capital ratios are exceptionally high. Disappointingly, they made one big misstep. When the government showed up at their door and said,

"We're here to help," they didn't slam the door shut.

During the fourth quarter of 2008, after Congress passed the TARP, banks, investment banks and others were allowed to apply for an investment by the government. The government intended these investments to increase capital levels, boost national confidence in banks and increase lending. The best, most sound banks in the country were encouraged to apply.

Why did the government want to GIVE capital to even good banks? That's the key question. The answer is "The government DIDN'T GIVE money to ANY bank." Just as you or I might do, the government made an investment in these banks. These investments are in the form of preferred stock, which, in substance, is somewhat similar to a loan. Anytime you read or hear that a company was "given" TARP money (or any other assistance for that matter), know that you are being misled.

The other word that gets thrown around recklessly is BAILOUT. Associated Bank and most other banks that accepted the government's investments didn't need the money. They were encouraged to apply for the money for the reasons mentioned above. Many of these banks believed they could bolster customer confidence by accepting the capital, whether they needed the capital or not. It was viewed as a relatively inexpensive way to look strong.

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10 comments about this article. Post a comment / write a review.

Recent Talkbacks ...

Posted by Banking_101 on Feb. 20, 2009 at 3:59 p.m. (report)

I'm pretty sure that most of you have no idea what you're talking about. Yes, they took the money. But this was no bailout. These banks, and most others that participated in the CPP took the money so that they can make more money. Anyone that knows anything about banking knows that banks make money using money. Banks take your money as deposits, borrow money, and in this case sell preferred stock to get money at low interest rates. Then they turn around and lend that money at a higher rate of interest to make money. Now, if this is your business model, and you are offered millions from the government, at a relatively low cost to you (I believe it's 5% for the first 5 years), would you not accept it? Plus, with lending regulations they way they are, for every dollar you have, you can make 10x that in loans. So if you were to get $1 million at a cost of 5% to you, you can make $10 million of loans at 5% and make quite a bit of money. So, allow me to repeat, this is not a bailout. This was a sound business decision by profitable banks that have since lent much of that money to communities they serve. So, if these profitable banks want to reward employees for a job well done, I see no problem, except that they didn't take me. Educate yourself before you rush to judgment.

Posted by pickingMemberIdSucks on Feb. 18, 2009 at 12:32 p.m. (report)

"Associated Bank and most other banks that accepted the government's investments didn't need the money" then these holding banks shouldn't have taken it. and since the government (and by proxy, the taxpayers) are now preferred stock holders in these banks, they unfortunately have opened themselves up to public opinion and scrutiny - and public opinion on bankers and banks is: untrustworthy (and a bit slimy). "Contrary to current thought, these are companies run by smart people. They are already responsible to shareholders." they took the money when they didn't need to, with negative consequences - not too smart. these smart financial folk didn't see the financial ruin our country was heading toward with all these funky loans and financial instruments being bandied about: not too smart. responsibility to shareholders didn't stop a whole lot of investment and holding banks from making bad loans and investments. "Who's bailing out whom?" we're bailing your industry out against our will for 'the betterment of America' or somesuch, remember that, finance guy.

Posted by rabid652 on Feb. 18, 2009 at 11:46 a.m. (report)

Chateau, who are you refering to?

Posted by ChateauDweller on Feb. 18, 2009 at 11:30 a.m. (report)

Quit whining about not "getting yours."

Posted by yinger73 on Feb. 18, 2009 at 11:01 a.m. (report)

I think some of you may be missing the point. You shouldn't feel bad that the bank's employees didn't get their reward trip. You should feel bad that the bank is under pressure to bring it's expenses in line with public opinion. What's next? Some reporter deeming a loan candidate not worthy? Or a new depositor?

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