Even in the face of their debacles of historic proportion, many of these institutions persist in acting in a manner more resembling an economic sociopath than a responsible steward of the public interest, whose salvation has essentially been made possible and underwritten by the American taxpayer.
Reminiscent of another major Bush administration blunder where what was advertised did not exactly work out that way in reality, there are signs that the great bank bailout that is the centerpiece of the $700 billion Treasury infusion is taking on a life of its own. Instead of loaning out their injection of public capital to small businesses and consumers, banks are either hoarding the money or using it to buy up other institutions. One sure example of this is PNC’s announcement on Friday of its purchase of National City, a smaller regional bank. The purchase price comes in at $5.8 billion. The amount PNC got from Treasury’s recent redistribution of taxpayer wealth to Wall Street and the financial sector (not in his wildest dreams could Karl Marx ever have thought that his theory would find such unlikely adopters) was $7.7 billion. Do you suppose the two are related?
The New York Times’s Joe Nocera thinks so. In an impressive bit of reporting, he recounts in his Saturday column how a JPMorgan executive set out the Bank’s view of the government’s injection in a recent employee conference call:
What we do think it will help us do is perhaps be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling. And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop.
Lending money does not appear to be high on JPMorgan’s To Do list. And it is probably not on many other banks’ either.
The third bit of evidence that the public has been blindsided big-time by how the banks are handling their windfall came courtesy of Citigroup. They set aside $25 billion for bonuses this year, even after their record losses and write-downs, which were substantially beyond $25 billion. How much do you suppose they got under the first round of the bailout plan? Twenty-five billion, exactly.
The reality is swiftly emerging that the United States government has become a gigantic hedge fund. It is providing the money and guarantees that are permitting the banks to use their own capital in ways that will inure to greater advantage for top employees and insiders.
Mr. Nocera, whom I think has the normally impressive street-smart intuition of a native New Yorker, had a more optimistic view of why the $700 billion bailout had to be passed on an urgent and virtually unquestioned basis:
I don’t think they are going to wait much past the weekend. No deal, no credit markets. It’s as basic as that.
And if that happens, the consequences will be far more pressing than the failure of a Morgan Stanley or a Goldman Sachs. You won’t be able to get a mortgage. Credit card rates will skyrocket. Businesses will be unable to expand and grow. Unemployment will rise.
We were a tougher sell on the bailout and remain so today for obvious reasons. Here’s part of what we predicted.
Let’s be clear: the central purpose of the bill was to help Wall Street restore the glitter, glitz and gravy train to Wall Street. It is designed to help banks and bankers go back to the future and pretend that the mess they made never really happened. Nearly a trillion dollars can help rewrite a lot of history. It has much less to do with easing credit for Main Street….
Confidence has been the missing partner in the economic voyage of recent months. The consequences have been devastating. Prominent in accounting for its absence have been colossal misjudgments and self-indulgence on the part of Wall Street and its major banks. The entire economy has been turned upside down to repair the damage they have caused, at a cost no one ever could have conceived possible. Yet in the face of these debacles of historic proportion, many of these institutions persist in acting in a manner more resembling an economic sociopath than a responsible steward of the public interest, whose salvation has essentially been made possible and underwritten by the American taxpayer. Too many insist upon hoarding their rescue proceeds or using the money to expand or to reward themselves with huge bonuses. Last week we had the AIG junkets and the propsect of tens of millions being paid out to failed CEOs. Soon it will be the auto companies looking for a handout, with Cerberus Capital bigwigs doing all kinds of contortions to justify why the private equity firm that claimed Chrysler was better without the investing public should now have the full backing of the American taxpayers to save it. Somebody should add an index to the stock market which would measure hypocrisy, like the VIX gauges volatility. It might give investors a better clue as to a company’s real future.
Wall Street’s leaders have offered few words to quell the raging public opprobrium that is mounting against their actions. They have expressed virtually no criticism of the practices of their industry that led to the credit calamity. And they have had little to say to the shareholders and taxpayers who are carrying the can for their failures. They seem to think that their self-absorbed ways will continue into the future, this time with ordinary Americans footing the bill. They are wrong on so many levels.
Neither our economic system nor the millions of stakeholders who place their trust in it can afford captains of capitalism who demonstrate, time after time, such titanic misapprehension of both business reality and the role of public confidence that is essential to success, which is why the bank CEOs and boards that continue to remain tone deaf to the historic new dimension of their responsibilities resulting from the bailout they made necessary is our choice for the Outrage of the Week.