The Strong Get Stronger

It’s not the state’s struggling financial institutions that are benefiting from the feds’ $700 billion bailout package.

It's called a federal "bailout," a $700 billion relief program supposedly meant to aid America's needy financial institutions. Except: "We did not need nor require this capital," says Brian Vance, CEO of Heritage Financial, a $900 million holding company headquartered in Olympia whose net income for the first nine months of 2008 was $6.5 million. Yet last month, Heritage accepted $24 million in congressionally approved bailout cash.Likewise, Washington Federal of Seattle, which got $200 million under the program, "did not need the capital infusion," says spokesperson Cathy Cooper—but took it anyway.The bailout fund is called TARP, the Troubled Assets Relief Program. But much of the money distributed so far has gone to banks with anything but troubled assets. "The public needs to understand," says Cooper, "that what once was a bailout has changed focus. Rather than buying out bad banks, it has become a program to help strong banks."In other words, despite what you might read or hear, this is a "healthy bailout" if you're into oxymorons—or "corporate welfare" if you're not. A Treasury Department spokesperson says the department is now targeting healthy rather than ailing institutions, reviewing financial records to determine which institutions are in good shape before inviting them to apply for funds. The aim is to keep strong banks strong rather than to prop up weak banks likely to fail (as 24 U.S. banks have done this year).Heritage and Washington Federal are two of seven Washington banks that have taken altogether $793 million in the 2008 financial bailout, according to a review of federal records. The biggest slice, $303 million, went to Sterling Financial Corporation in Spokane.Nationwide, about $335 billion of the $700 billion bailout has been allocated so far, and 211 U.S. banks have been granted $199 billion of that, according to the Government Accountability Office and, an investigative journalism Web site. But critics say the money comes with so few strings attached—for example, there's no enforceable edict on how the banks must use the funds—that the misnamed TARP program is a cash cow waiting to be milked.As Harvard law professor Elizabeth Warren, chair of the government bailout oversight panel, put it in a recent MSNBC interview: "The principal strategy that the Treasury is using right now is 'Let's put billions of dollars more cash into banks that are already solvent.'...It just takes a little to try to understand how that's going to help families across the country."The TARP funds are distributed through the Treasury's Capital Purchase Program (CPP). In return, banks hand over a corresponding amount in stock, which the government can redeem in later years; in the meantime, they agree to pay five percent stock dividends to the feds. But if CPP is an economic engine that strengthens strong institutions, as Treasury Secretary Henry Paulson says, that idea seems lost not only on the public but on some of the banks: Among the CPP recipients is Honolulu's Central Pacific Financial, which was near failure until it got $135 million through the program this month.Such contradictions aside, money is mostly flowing to banks that don't seem to need it. Washington Federal CEO Roy M. Whitehead observed that his bank felt "complimented" to get $200 million in new equity to augment "our strong capital position." D. Michael Jones, CEO of Banner Corp. in Walla Walla, said the $124 million shot in the arm his bank got was "recognition of the strength and financial health of Banner." Melanie Dressel, CEO of Columbia Banking System in Tacoma, which got $76.9 million, said the money "further affirms both our financial strength and our successful business model." Also getting CPP bailouts were Cascade Financial of Everett ($39 million) and Washington Banking of Oak Harbor ($26.4 million).Heritage CEO Vance did not respond to phone inquiries. But in a press release, he said the bailout money would increase Heritage's capacity to make loans and strengthen its ability to "proactively work with our borrowers in difficult times." Difficult for the borrowers, it seems, but not so much for the

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