...usually with an attempt at historical and economic context
Monday, December 14, 2009
Bankers Try To Respond to Government’s Mixed Signals
Let’s convince everyone that unemployment is due to fat cat bankers stubbornly refusing to lend money to small business, and also that their deliberately excessive lending is what caused the financial crisis – that and the policies of the Bush Administration. That seems to be part of Obama’s economic strategy. They’ve succeeded in getting many people to think that “fat cat bankers” are the main problem:
Obama didn’t run for office to help out “a bunch of fat cat bankers on Wall Street,” he says, but that is precisely what he did by supporting the TARP bailouts. He enabled banks that wanted to pursue risky behavior by ameliorating their risk. In other words, as some have noted, allowed them to be “capitalist” with profits, but “socialist” with losses.
Big bankers, looking to position themselves for maximum advantage in whatever the government decides, are making noises to indicate, “Yes, we’re on board with ‘stepping up’ to help with the lending slowdown,” but also, in response to government warnings and what they astutely perceive as threats, they are being very cautious about making any kind of risky loans. They are keeping more reserves, meaning that less money is available to lend. So, they’re damned if they do and damned if they don’t.
As video at Wall Street Journal online notes, the President has a style that could create awkwardness, planning a big meeting with bankers so he and they can “work together,” after lambasting them on a 60 Minutes broadcast the previous evening. Some of the bankers probably felt like giving Mr. Obama a less than courteous reply. But, as mentioned, they want to be in an advantageous position somehow.
The “pay czar” is going to see to it that banks that still owe TARP money are going to keep bonuses to a minimum, and those who don’t owe money are to some degree restraining their bonuses. This large reduction in bonuses has hit hard in New York (state and city), since a great deal of tax revenue results from these bonuses. Unintended consequences…
The government wants new financial industry regulations to tell banks how to manage their business when the government’s management of its own financial business is out of control and getting worse. The House has passed a version of a regulatory bill, expanding government power (the theme of the Obama presidency) over risky or failing organizations. In the name of preventing bubbles and meltdowns, they actually will prevent a lot of prosperity by suppressing risk. And they wonder why banks aren’t on board with this.
“Large banks, from J.P. Morgan Chase to Citigroup Inc., lobbied against parts of the measure. They said the bill would penalize them for being large, through tougher capital requirements and higher fees, and would give the government greater authority to either seize large companies or order them to decrease their size.” 
American Banking News states: “But as those in the banking industry rightly say, you have the White House speaking out of one side of its mouth while regulators are speaking out of the other side of their mouths.
“Regulators are telling the banks to strengthen their capital ratios and to be on the lookout for default trends going forward. In those cases the regulators are advising the banks to cut back on lending.
“But we already know that the big hit the banks are going to take on commercial lending hasn’t even arrived yet, and is going to kick in during the second half of 2010. So Obama attempting to pressure them to lend in order to try to get the economy back on track is ignorant at best, and terrible as far as business operations go.” 
So, which is it? Be cautious and don’t take risks with your bank’s money, or be open to more risk, possibly leading to more of the mortgage problems that led to the financial crisis? It seems the government wants to be able to blame bankers for whatever economic problems they can blame them for. Just so long as they can deflect criticism from their own policies.
I have sworn upon the altar of God eternal hostility against every form of tyranny over the mind of man.