Yesterday, a day after President Obama told 60 Minutes that he “did not run for president to bail out a bunch of fat-cat bankers,” he sat down with the portly felines of finance.
Below is the text of the remarks he gave after the meeting wrapped up, along with some interspersed reactions on my part.
THE PRESIDENT: Good afternoon, everybody. I’ve just finished a candid and productive meeting with the CEOs of 12 of our nation’s largest financial institutions. I asked them to come to Washington today — at the end of this difficult year for their industry, but also for the economy — to discuss where we’ve been, what we expect of them going forward, and how we can work together to accelerate economic recovery.
Note that these CEOs didn’t bother to even show up when he went to Wall Street on the anniversary of the Lehman collapse. The top brass from three of the biggest firms — Goldman Sachs (GS), Morgan Stanley (MS) and Citibank (C) — didn’t make it yesterday, supposedly due to the weather.
Our nation’s banks play, and have always played, a crucial role in our national economy — from providing loans for homes and cars and colleges; to supplying the capital that allows entrepreneurs to turn ideas into products and businesses to grow; to helping people save for a rainy day and a secure retirement. So it’s clear that each of us has a stake in ensuring the strength and the vitality of the financial system.
Obviously we need a financial system, but do we really need one that is as big as our current one as a share of the overall economy?
And that’s why one year ago, when many of these institutions were on the verge of collapse — a predicament largely of their own making, oftentimes because they failed to manage risk properly — we took difficult, and, frankly, unpopular steps to pull them back from the brink, steps that were necessary not just to save our financial system, but to save our economy as a whole.
I was a backer of TARP, especially after it moved from being about buying up assets to being a capital injection program (much more “bang for the buck”). My biggest problem was that the previous administration seemed to go out of its way to negotiate very poor terms for the taxpayer for those capital injections.
Yes the TARP is being paid back, and the government is making a profit from the banks (will still lose money on AIG [AIG] and the Auto companies), but given the amount of risk the taxpayers were taking, we should have had much larger profits. Those profits would have sharply reduced the deficit.
Today, due to the timely loans from the American people, our financial system has stabilized, the stock market has sprung back to life, our economy is growing, and our banks are once again recording profits. A year ago, many doubted that we would ever recover these investments, but we’ve managed this program well.
This morning [Monday], another major bank announced that it would be repaying taxpayers in full, and when they do, we’ll have collected 60 percent of the money owed — with interest. We expect other institutions to follow suit, and we are determined to recover every last dime for the American taxpayers.
The payback has come much sooner than expected, with even the true basket cases like Bank of America (BAC) and Citibank now able to pay down all, or at least a significant portion, of the assistance.
So my main message in today’s meeting was very simple: that America’s banks received extraordinary assistance from American taxpayers to rebuild their industry — and now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.
“Expect” is probably the wrong word; “wish for” would have been a better term. A wish that seems unlikely to be fulfilled.
That starts with finding ways to help credit-worthy small and medium-size businesses get the loans that they need to open their doors, grow their operations, and create new jobs. This is something I hear about from business owners and entrepreneurs across America — that despite their best efforts, they’re unable to get loans. At the same time, I’ve been hearing from bankers that they’re willing to lend, but face a shortage of credit-worthy individuals and businesses.
Now, no one wants banks making the kinds of risky loans that got us into this situation in the first place. And it’s true that regulators are requiring them to hold more of their capital as a hedge against the kind of problems that we saw last year. But given the difficulty businesspeople are having as lending has declined, and given the exceptional assistance banks received to get them through a difficult time, we expect them to explore every responsible way to help get our economy moving again.
The banks complain about mixed messages — the administration wants them to increase their capital ratios, but it also wants them to lend more. Perhaps if the banks paid less out in huge bonuses they would have more retained earnings, and hence capital to use to make loans. Steps like Goldman Sachs took to pay the bonuses in stock (restricted from sale for five years) also boosts the amount of equity capital, although it does dilute existing shareholders somewhat.
And I heard from these executives that they are engaging in various programs like “second look” programs, hiring more folks, raising their target goals in terms of lending — all of which sounded positive, but we expect some results, because I’m getting too many letters from small businesses who explain that they are credit-worthy and banks that they’ve had a long-term relationship with are still having problems giving them loans.
We think that’s something that…can be fixed. And so I urged these institutions here today to go back and take a third and fourth look about how they are operating when it comes to small business and medium-sized business lending.
The actions of the banks are very different from what their public relations are spinning.
We also discussed the need to pass meaningful financial reform that will protect American consumers from exploitation and…the American economy from another financial crisis of the kind which we just came out of.
I noted the resistance of many of the financial sectors to these reforms — the industry has lobbied vigorously against some of them — some of these reforms on Capitol Hill. So I made it clear that it is both in the country’s interest — and ultimately, in the financial industry’s interest — to have updated rules of the road to prevent abuse and excess. Short-term gains are of little value to our banks if they lead to long-term chaos in the economy.
And I made very clear that I have no intention of letting their lobbyists thwart reforms necessary to protect the American people. If they wish to fight common-sense consumer protections, that’s a fight I’m more than willing to have.
The reform proposals of the administration were a good first step — but only a first step — at the sorts of financial reforms needed. Unfortunately, they have already been whittled down significantly, and probably will be undermined even more before the process is over. This is exactly the sort of issue where the lobbyists are at their most powerful — a very important but dull, dry and highly technical issue. The public is quickly lost as to what is going on and loses interest.
The way I see it, having recovered with the help of the American government and the American taxpayers, our banks now have a greater obligation to the goal of a wider recovery, a more stable system and more broadly shared prosperity.
So I urged them to work with us in Congress to finish the job of reforming our financial system to bring transparency and accountability to the financial markets; to ensure that the failure of one bank or financial institution won’t spread throughout the entire system, and to help protect consumers from misleading and dishonest practices with products like credit and debit cards, with mortgages and auto and payday loans.
Now, I should note that around the table all the financial industry executives said they supported financial regulatory reform. The problem is there’s a big gap between what I’m hearing here in the White House and the activities of lobbyists on behalf of these institutions or associations of which they’re a member up on Capitol Hill. I urged them to close that gap, and they assured me that they would make every effort to do so.
The banking executives that bothered to show up basically lied right to the face of a sitting U.S. president — one who has been extremely nice to them so far. The actions of the bank lobby groups are what you need to look at, not what the executives say. Let’s just see if there are any major changes in position from any of the major trade associations that are working on the issue. I would say the odds of the sun rising in the West tomorrow are higher.
In the end, my interest isn’t in vilifying any one person or institution or industry; it’s not to dictate to them or micromanage their compensation practices to ensure that consumers and — my job is to ensure that consumers and the larger economy are protected from risky speculation and predatory practices, that credit is flowing, that businesses can grow, and jobs are once again being created at the pace we need.
True, the government would not do a good job at micromanaging these sorts of issues.
Some of the banks and financial institutions have taken small but positive steps to improve lending to small and medium-sized businesses, as I indicated. They’ve begun reworking mortgages that are now underwater because of declining home values, and they have acknowledged that much more needs to be done going forward. Many have begun to follow our lead in shifting from paying huge cash bonuses to awarding long-term stock, which will encourage more prudent decision-making — but, as I indicated in this meeting, they certainly could be doing more on this front as well.
The percentage of trial modifications in the HAMP program that are becoming permanent modifications is extremely small, at J.P. Morgan (JPM) it is close to 2%. The “efforts” of the banks are not yielding much in the way of results. Paying bonuses in stock is a big improvement over cash bonuses in terms of capital strength and the ability to lend.
I would note that other countries, especially the UK and France, are taking real steps to limit big bonuses being paid in the first place, in the form of a 50% tax (paid by the bank, not the executive) on big bank bonuses. That seems like a very good idea to me, but not likely to happen here.
These efforts reflect a recognition ultimately that the fate of our financial institutions is tied to the fate of our economy and our country — and these institutions can’t endure if workers don’t have jobs, and businesses can’t grow, and consumers don’t have money to spend. Ultimately, in this country, we rise and fall together — banks and small businesses, consumers and large corporations, and we have a shared interest in working together to ensure a lasting recovery that will benefit all of us and not just some of us.
I called today’s meeting with this in mind, and I told the group that I look forward to continued engagement and progress in the months and years ahead.
Thank you.
This is getting spun in the press as “Obama gets tough on the banks.” Fox will probably play it as “Obama the Socialist at war with Wall Street.” It’s all Kabuki theater. The problem with Obama is not that he is too hostile to Wall Street; in fact, the very opposite could be argued.
Just once I would like to see him pull a page out of FDR’s phrase book and see him call them by what they are, “Economic Royalists” and “Malefactors of Great Wealth.” Well, perhaps “fat cats” is a start.
Read the full analyst report on “GS”
Read the full analyst report on “MS”
Read the full analyst report on “C”
Read the full analyst report on “AIG”
Read the full analyst report on “BAC”
Read the full analyst report on “JPM”
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