We Should Have Bailed Out Santa Too

I have it on good authority that Santa applied for TARP funding but was denied. Because Santa is a mythical figure not covered under the Constitution, hearings and testimony were not subject to Sunshine laws. Nonetheless, my contacts in and around the Beltway tell me this is what happened:

Years of excessive pay to elves, the production of too many, poor quality toys that no one wanted, and the legacy costs associated with pension and healthcare benefits for retired reindeer and elves had left Santa’s northern pole operations in shambles and facing bankruptcy. Moreover, his failure to recognize shifting consumer tastes and preferences offered an opening to alternative holiday celebrations with Kwanzaa and Chanukah each stealing significant share.

“Everyone on the Hill knew it was over the moment that those hooves hit the tarmac at Ronald Regan International.”

My contacts report intense lobbying leading up to Christmas gave Santa a decent shot at getting a bridge loan under the TARP program. Santa had skillfully played down the notion that it was a bailout, but rather the preservation of a dream held by millions of children and a way of life. “Of all the countries I serve,” said Santa, “America is the only one where putting all reason aside to give others what they need – if just once a year – is a tradition that should and must be preserved.”

Opposition flared however.

Mitt Romney said, “Without that bailout, Santa will need to drastically restructure how he does things. With it, he will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses for elves,” Romney said. “Santa needs a turnaround, not a check.”

Richard Shelby, a Republican from Alabama wondered aloud about the existential nature of the proposed funding “Will it be used to improve Santa’s business model — which has been a failure or is this just life support?”

Treasury secretary, Henry M. Paulson Jr., implored lawmakers to oppose using any of the $700 billion financial bailout for Santa, which he said would set a dangerous precedent. “We can’t support someone who, for starters dresses the way Santa does, but more substantively, who lives in a bubble, is completely disconnected from Main Street, and has used has used Byzantine methods which no one quite understands to amplify the risk imbedded in his operations.”

Ultimately, it was Santa himself who dashed any hopes for TARP funding when –poorly served by his advisors in the North Pole – he arrived in Washington via his own personal sleigh. Perhaps seeing their chance to deny funding and win a public relations war, lawmakers were quick to denounce Santa, suggesting that he should have ridden in one of the Big Wheels tricycles that are produced right in his North Pole factory.

"There is a delicious irony in seeing a private sleigh flying into Washington and Santa coming off with a tin cup in his hand, saying that he’s going to be trimming down his operation," said representative Gary Ackerman, a Democrat from New York.

"I'm not an opponent of private sleighs by any means,” said Representative Patrick T. McHenry, a Republican from North Carolina. “But the fact that you flew in on your own private sleigh to Washington is a bit arrogant before you ask the American taxpayers for money."

My contacts tell me that everyone on the Hill knew it was over the moment that those hooves hit the tarmac at Ronald Regan International. Lawmakers were distracted by the problems facing automakers and banks, and though they gave the big guy with the funny hat and beard some time and a good public scolding he walked away with his sack, usually reserved for toys, rather empty.

Henry Paulson allowed Santa to save face however by suggesting the Polar Redevelopment Commission for Integrated Northern Enterprises or PORCINE might be funded and provide him a source of future liquidity.

But this must be the season of miracles, since almost everyone I know got at least a little something, attended a few parties and did their best to make merry. Somehow Santa pulled it off, though I understand he is making no promises whatsoever about making our dreams come true in 2009.

Relax

To all my friends and colleagues, executives at portfolio companies and all the other professionals I’ve met lately who are in a state of agitation over the socialization of the American banking industry, I would humbly and respectfully suggest they take five and relax

It’s not all that bad. Really.

My confidence on this point stems largely from the history of banking in the United States. Yes, there’s been turmoil, now and in the past.

“But when I look at the wider canvas, I see continuous and successful adaptation to change.”

For instance, the branching restrictions developed in the 19th century were designed to ensure that no bank could amass an undesirable concentration of power or choose remote locations that would deter depositors from redeeming notes. This is a quaint notion today, but was absolutely vital when all business had to be conducted in person. Banks responded by modeling themselves to service single, discreet markets. The real beauty of this was that when the economy consisted of a patchwork of regional economies debt capital was distributed wherever it was needed by thousands upon thousands of banks. The economy thrived in a granular as well as aggregate sense, and so did the banks that supported it.

Later when the completion of the transcontinental railroad meant transcontinental commerce, so-called “chain banks,” were formed which were confederacies of banks all owned principally by the same investors. These were followed in 1890 by the first bank holding companies.

When the S&L crisis hit, and the notion of regional lending and deposit gathering presented very real risks and limitations, banking consolidated through the creation of intra, inter and national branch systems. It wasn’t always pretty, but it worked. For instance, while the number of banking companies in the United States between 1982 and 2007 contracted at a compounded annual rate of 2.8%, average bank profitability expanded at a compound annual rate of 11.3% every year, according to aggregate data extracted from archives on the FDIC’s site.

So what does the future hold for banking? It’s difficult to say any more than one could predict the landscape for the industry in the midst of the savings and loan crisis. But it will change, survive and ultimately prosper.