TBA Law Blog

Posted by: William Haltom on Oct 30, 2008

Journal Issue Date: Nov 2008

Journal Name: November 2008 - Vol. 44, No. 11

Mark Twain once said that a banker is a man who will give you an umbrella on a sunny day and then ask for it back when it starts to rain. But Twain wrote this back in the good old days when bankers were conservative men who wore dark suits and somber expressions and only loaned you money when you proved you didn't need it.

These old-fashioned bankers weren't stingy old misers like Mr. Potter in It's A Wonderful Life. They could be just as friendly as George Bailey, and besides, when they gave you a loan you proved you didn't need, they also gave you a toaster. The old-time bankers were men like Mr. Drysdale, the president of the Commerce Bank of Beverly Hills in The Beverly Hillbillies. They were serious men who believed in balanced budgets, savings accounts and wise sound investments in American companies that actually manufactured products that people bought and used, such as toasters.

But beginning back in the 1980s (not coincidentally at about the same time even conservative Republicans stopped believing in balanced budgets), old-fashioned bankers began to be replaced by a new breed called "investment bankers." These investment bankers didn't give us toasters. Instead, they sold a product called "adjustable rate mortgages," and in recent years, "sub-prime mortgages." Initially, these new-fangled mortgages looked like the greatest invention since indoor plumbing. They weren't nearly as hard to get as the old 20-percent-down, 30-years-to-repay fixed rate mortgages that Mr. Drysdale and all those old conservative bankers used to offer.

Even better, the adjustable rate mortgages were not only easy to get, the payments were low ... for a while. No doubt about it, this new generation of investment bankers offered a decidedly supply-side approach to banking and finance: Party today, pay tomorrow!

And then, these new investment bankers did something else. Rather than holding these mortgages for 30 years, they "leveraged" them, selling them to somebody else, I'm not sure who. I'm not sure how this was supposed to work, but it was part of the party-now, pay-later plan, as this new generation of investment bankers were not patient enough to wait 30 years to get paid.
They also came up with a whole new way of making money. They sold pieces of paper that were printed with all sorts of information about money! They actually convinced each other and unfortunately, many of us that the paper they sold was worth even more than green paper that features pictures of presidents of the United States.

The investment bankers differed from the old-fashioned bankers in another significant way. They liked to gamble. In fact, rather than being called "investment bankers," they should have been called "gambling bankers." They stopped investing depositors' money in homes or local businesses. Instead, they took our money to the nation's largest casino, the New York Stock Exchange, a/k/a Tunica North.

They also invested in something called "hedge funds," which sounds like money you would spend on clippers for your wisteria plants.

This would have been okay if the investment bankers were good gamblers. But like so many gamblers, they started off hot and then quickly went cold. They forgot the wisdom of that noted investment banker, Kenny Rogers, that you've got to know when to hold them and know when to fold them. Faster than you can say "Bear Stearns," many of these gambling bankers went broke. That would have been bad enough, but they went broke gambling with our money.

Well, as we now know, the party's over, and it's time to pay the bill. Or is it? With the federal government bailout of the finance industry, investment bankers may not go bankrupt after all. We can keep on partying and let our children and grandchildren pay later, to the Chinese who are financing the bailout.

Well, I don't mean to be a party pooper, but I say it's time to quit borrowing money from the Chinese and then spending this borrowed money bailing out the Bank to Nowhere or the Tunica Savings and Loan. I say it's time to bring back the old-fashioned bankers like Mr. Drysdale or, heck, even Mr. Potter of the First Bank of Bedford Falls. We need to bring back the old guys in dark suits (there are no casual days at real banks) who will go back to loaning us real money when we can prove we don't need it, and then will be a real partner with us, investing in our homes, our businesses, and above all, investing in us. And they may even give us a toaster.

Bill Haltom BILL HALTOM is a partner with the Memphis firm of Thomason, Hendrix, Harvey, Johnson & Mitchell. He is past president of the Tennessee Bar Association and is a past president of the Memphis Bar Association.