More than once at Davos a quote from Ronald Reagan has been taken in vain.
The quote from the former U.S. president is said to go something like this: “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’”
After getting an audience chuckle, the speakers using the line go on to say that during the height of the financial crisis, bankers and others were for once indeed glad to see the government, riding to the rescue.
Posted by Gabriella Stern
on January 16, 2010
Bank Rescue Plan
, Credit Crisis
, Democratic Party
, Wall Street
Did you read Dorothy Rabinowitz’s WSJ opinion piece on Massachusetts District Attorney Martha Coakley, the Democratic Senatorial candidate who’s up for election on Tuesday? You should, because it will make you wonder why President Obama is bothering to stump for Coakley in a last-ditch effort to save the seat for his party. Oops! That’s why he’s doing it. The Dems are in trouble as the 2010 midterm elections loom, and the party’s leader is doing what’s necessary to protect each and every Congressional vote. As I wrote yesterday in another context, desperate times call for desperate measures. But do they? If I were the president’s advisers, I’d be telling him to take a deep breath and craft a noble plan to salvage a presidency that still has a lot of potential to re-tie the fraying bonds which Peggy Noonan writes about today. All this said, I and perhaps you, too, took a bit of satisfaction from Obama’s attack on big banks this week, even as one felt slightly seamy for doing so. Rich bankers are such a cheap and easy target these days that it almost seems beneath the President of the United States to go after them when the problems afflicting our economy – including the financial services industry – are so much bigger and complex than what amounts to a payroll issue. The fundamental fin services issue before policy makers, regulators and us, the voters, is: what should a bank look like? Should it be a multi-tasking, uncontrollable behemoth like Citigroup or a slim, streamlined boutique like Lazard or the cliched Main Street deposit-taking bank? Is there a particular industrial structure, regulatory regime and compensation system that will protect us from the dangers of the just-ended decade – easy credit and easy mortgages put through the derivative department’s Cuisinart and peddled to the gullible? Aren’t we, who squandered our savings on McMansions only to get anti-foreclosure assistance, as blameworthy as the be-suited M.B.A.s we’re flogging so publicly?
The U.S. Treasury just pumped another $3.79 billion into GMAC Financial, the struggling finance company that is now majority owned by you and me. GMAC got itself into a financial pickle by getting too heavily involved in the mortgage business and in particular, the subprime mortgage business.
As part of the cash infusion today, the company also reclassified some mortgage assets it hopes to sell. And to pretty those assets up for sale, GMAC took additional write offs on some of those assets. But a rough, back-of-the-envelope calculation makes one wonder if these assets have been written down enough.
Posted by Gabriella Stern
on December 10, 2009
Bank Rescue Plan
, Investment Banking
The guys at Goldman Sachs have shown once again why they’re the Masters of the Universe. By announcing something of a clampdown on the compensation of its top management committee, the investment bank is proactively moving to dampen criticism that it profited at taxpayers’ expense. And they’re doing so at precisely the right time: the U.K. is poised to slap London-based bankers with a 50% bonus tax, French officials have signaled their intention to follow suit, and pretty much every other government is scrounging around for ways to punish financial services companies. Goldman’s move comes a few weeks after it announced a program to assist small businesses. It also follows an effort by Goldman pooh-bahs to persuade key shareholders their pay wasn’t too high; they’ve apparently listened to their constituencies. It all amounts to savvy public relations worthy of the world’s most profitable investment bank. Cynics may grouse that the 30 members of Goldman’s management committee will find ways to enrich themselves even as cash payouts are largely replaced by shares which have to be held for five years and can be clawed back if performance falters. In fairness to the bankers, they’re damned either way. I’m willing to bet that Goldman partners debated whether they should even bother reining in their compensation on the basis that they wouldn’t get any credit for doing so. But it’s wise they moved forward with the plan at this particular point in time: the smartest investment banks will do all they can to prevent anti-bank forces from gaining more ground in the court of public and political opinion.
In a way, it’s long overdue, given last autumn’s financial system trauma: A key Congressional committee has voted to rein in the Federal Reserve’s authority. The 43-26 vote by the House Financial Services Committee is historic, and it’s a stunner. The measure’s shock value isn’t because of intent – surely most of us shuddered as the men running the Fed and the U.S. Treasury made historic and often problematic decisions to bail out some huge financial entities and let others die while engaging in massive monetary engineering that boggled the mind. What’s shocking is that the Congress has actually done something sharp and sure at a time when it seems Washington, D.C., can’t seem to do much of anything. There will be much discussion now about whether the Fed should or shouldn’t retain its powers, and whether the proposed regulatory council comprises the right bureaucrats. But at least the issue’s on the table. Let’s hope an intelligent debate ensues.
The Wharton School of the University of Pennsylvania has been hosting some of the Wall Street CEOs who guided their firms into and out of the financial crisis. Earlier, we shared John Mack’s tale of defiance and in his own words what he did to keep Morgan Stanley afloat (click here for that video). Here, John Thain discussed what led to the financial crisis and talks about some of the controversies that surrounded his tenure as head of Merrill Lynch. He addresses Bank of America’s claim that it knew nothing about the Merrill controversial bonuses last fall and calls that claim a lie – Thain says they not only asked Merrill to pay higher amounts of cash versus stock but when Merrill proposed paying the bonuses in Merrill stock, B of A said no, pay them in B of A stock. And regarding the furor over his office redecoration that cost more than a million dollars and which he ultimately repaid out of pocket: “I’d furnish it in Ikea” if he could do it over again. The video is about 29 minutes. The first 8 minutes are a long introduction, so, you might want to start around there. Thain addresses the bonus mess around the 22 minute mark. Click here for the video or on Thain’s picture above.
Morgan Stanley CEO John Mack recently appeared before a group at the Wharton School of the University of Pennsylvania and recounted the events of that one week last September that nearly brought down the global financial system. For anyone interested in global finance, it is a must view (it runs a little over 26 minutes). There are some stunning details – how federal regulators were pressuring Morgan Stanley to sell itself to J.P. Morgan for $1. How Mack had a firm conversation with J.P. Morgan CEO Jamie Dimon about speaking with Mack directly on any acquisition talks, and not his subordinates. His frequent phone calls with Goldman’s Lloyd Blankfein, who told Mack he had to find a way to rescue Morgan because if it failed, his firm might be just 20 minutes behind. And how and why Mack hung up the telephone with the three most powerful regulators in the U.S. Click on the image above to see the video or click here.
The Wall Street Journal’s Lingling Wei reported Saturday on new guidelines that allow banks to call loans on their books “performing” even if the value of the underlying properties has fallen below the loan amount. So U.S. bank regulators are taking their cue from their Chinese counterparts now?
The regulators, who include the Fed, FDIC and OCC, argue the rules are designed to encourage banks to restructure problem commercial mortgages rather than foreclose on them. So the regulators are trying to do something about what financier Wilbur Ross termed Friday the coming “giant crash” in the commercial real estate market.
It’s not yet officially proposed, but holes are apparent in the plan being hammered out by the Treasury Department and key Congressman Barney Frank, D-Mass., to better handle systemically important financial institutions on the brink of failure.
The key proposal: financial companies that have more than $10 billion in assets would have to pay the government back for breaking up one of their too-big-to-fail brethren.
That according to the reporting of Damian Paletta of The Wall Street Journal.
Posted by Gabriella Stern
on October 27, 2009
Bank Rescue Plan
, Federal Reserve
, Investment Banking
It’s got to be fun being Jamie Dimon, sitting atop the banking world (along side Goldman Sachs) and spouting off one-liners such as: The U.S. needs a strong dollar. Yes, Mr. Dimon, we need a strong dollar – and how, exactly, do you propose to strengthen the greenback? Would you be happy if Ben Bernanke & Co. started hiking rates – say, tomorrow? Would that be good for an economy on the verge of 10% unemployment? Have you looked at third-quarter corporate earnings reports? Do they really give you confidence that business and consumer demand is robust enough to justify Fed tightening? I’m not saying Dimon doesn’t have a right to his opinions; the annual meeting of the securities industry association is certainly an apt forum. But surely one of the world’s foremost bankers – Dimon runs JPMorgan Chase & Co. – should offer some nuanced elaboration from the podium. Here’s something else Dimon wants: less government regulation of banks. “We are in favor of consumer protection, but we believe we have a chance to simplify regulation rather than add another agency,” he said. Moreover, big banks on whose shoulders the health of the global financial system rests – the government shouldn’t “hamstring those companies,” Dimon said. Yep, simpler regulation will spot, forestall and fix impending banking disasters. I rest my case.