There is no free in liberty.


Sunday, October 31, 2010

Rep. Brad Miller (NC-13) - Dressing Up Bank Bailouts as Saving Jobs...


Brad Miller is at it again -- Dressing up Bank bailouts as jobs protection through an overtly friendly press.

Eastern Wake News:
Mortex owner Ed Morrell met with U.S. Rep. Brad Miller on Wednesday to explain how the U.S. Department of Agriculture's Rural Development office helped work out the details for a loan that kept his company afloat.

And this is how it was done...

Capital Bank's Triangle Region president Todd Warrick suggested the company and the bank work on an application to the USDA.

Under the terms of the deal, Capital Bank loaned Mortex $2.6 million on a 15-year note. They loaned the company another $500,000 on a 10-year note. The bank also extended a $750,000 line of credit, which Morrell says he does not plan to use. The loans are collateralized by the buildings and Morrell's personal savings.

Mortex didn't borrow any money from the government, a point Morrell made Wednesday in a meeting with employees. The deal calls for the USDA to guarantee 80 percent of the loans.

That means if Mortex defaults, the USDA would pay Capital Bank 80 percent of the loan balance.

And because the loans are fully collateralized, Capital Bank's exposure is limited.

That puts the pressure on Morrell and his family, which owns the privately-held company.

"(Morrell's wife) Kissie and I are on the hook," Ed Morrell told employees Wednesday. "If we fail, we lose everything we have."

Wouldn't you like to be Capital Bank in this transaction?

  • Make a loan that is fully collateralized.
  • Make interest on a no-risk loan due to an 80% back-stop on losses. In this case the loans total $3.1 million (credit lines do not qualify for the USDA 80% back-stop).

The interest rate of a loan is usually based on the risk of the loan. In this case the loan is fully backed with assets plus, in the event of default, coverage for 80% of the losses in the loan value. Where is the risk? There is none, yet the bank presumably charges interest. The interest rate is not given in the article, but business loan interest rates are generally quite a bit higher than home loans. In any event, interest charged on a risk free loan above 3% (estimated cost of loan administration and profit) is a government subsidized giveaway to the banks. The interest rate charged by Capital Bank is certainly much greater than 3%.

--This is a possible win for employees of Mortex, if Mortex doesn't fail.
--This is an absolute win/win no risk event for Capital Bank, whether Mortex survives or not.
--Supporting a weak business in a dying industry on the backs of taxpayers is a no win for America.

But how did Eastern Wake News report all this in the opening paragraph?

More than 600 people in Nash, Johnston and eastern Wake counties still have jobs thanks to provisions in a federal stimulus package that loosened underwriting rules for loans to companies in rural areas.

Brad Miller added:
"If you hear of people who say the stimulus package never saved a job, you can look at them and tell them it saved yours," Miller said.

It must be nice having friends in the press who are willing to throw reputation to the wind for the cause of your election.

Imagine the influence, though, -- Mortex beholden to government, Capital Bank beholden to government handouts, employees beholden to Brad Miller, and government under pressure of a $3.o8 million payout to keep Mortex from failing.

Now imagine weakened business across America taking advantage of such loans and the government giveaway (whether the business defaults or not) to Brad Miller's Bank friends at the expense of the productive class. Risk is for the little people not for the Miller's friends at the banks. Meanwhile Brad Miller dresses up this fleecing of citizens as a jobs saver. Immoral governance.

Are these connections likely to end in economic vitality, or or will they result in increased government influence for the ruling class and a loss of influence for the citizens of America?

Lastly, this sort of activity is what got America into the over leveraged position it that currently plagues our economy. According to this USDA Rural Development PDF this program "allows lenders to make loans above their legal lending limits".

Why does Brad Miller want the citizens of this nation indebted to his Big Bank Friends while protecting those same banks from all risk?


As an aside, a few questions have to be asked.
  • Just how bad do the banks expect to economy to get that they require an 80% back-stop on fully collateralized loans before considering going forward?
  • Just how bad does our government think things might get that they agree to this %80 back-stop?
  • And finally, is inflation considered in measuring losses on these? A bout of inflation would not only increase the likely hood of default but it would run up the losses that could be counted against the %80 back-stop.
Thank You Brad Miller.


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