Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Is Obama Ready To Rumble Over Bank Bonuses?

Politics / Credit Crisis 2009 Dec 17, 2009 - 05:32 AM GMT

By: Brady_Willett

Politics

Best Financial Markets Analysis ArticleWhen President Obama summoned the heads of the nations 12-largest financial institutions 3 neglected to show up in person and 2 others used the day of the meeting to announce that they would be paying back the money they owed the government. Apparently bank executives were not very pleased with the President’s ‘fat cat’ line, and they intended to leave Obama in the position of the fat girl pleading for a prom date.


Rather than calling bankers names and concocting PR stunts, Mr. Obama may have been well served to learn from the AIG experience. To recap: the reason why AIG’s counterparties would not accept anything less than par (the one exception was UBS’s 2-cent haircut suggestion) was because Timothy Geithner’s Fed had already bailed AIG out. Right or wrong, banks are the business of making money, not flushing it down the toilet. Apparently Mr. Geithner forgot this:

“After FRBNY decided to...buy the underlying CDOs, it attempted to obtain concessions from AIGFP’s counterparties.  FRBNY developed taking points for its staff for these negotiations. The talking points stressed that participation in concession negotiations with FRBNY was voluntary and asked the counterparties to consider the cost of the considerable direct and indirect benefits that the counterparties had derived from the Federal Reserve’s support of AIG.” SIGTARP. November 17, 2009

AIG’s counterparties did, in fact, consider the ‘benefits’ of the Fed’s ‘support’. That is why they got paid in full.

Back to Obama, that he is trying to rekindle the AIG experience by plucking the sentimental strings of banking executives is, quite frankly, pathetic.  Consider the ridiculous ‘talking points’ President Obama and Lawrence Summers recently worked out:

”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.” Obama. Dec 14, 2009

“The country did incredible things for the banking industry. Those things had to be done to save the economy, but no major bank would be intact, in a position to pay bonuses, if that extraordinary support had not been provided. The bankers need to recognize that. They need to recognize that they've got obligations to the country after all that's been done for them.” Summers. Dec 13, 2009

Say what you want about the fat cat bankers (some of which did not want to bailed out in the first place), but the only thing they are, and should be committed to is the fiduciary obligations they have to shareholders.  As for the average taxpayer (that didn’t want to bail out the banks in the first place), in most cases their investment has produced returns.

In short, that Mr. Obama attempted to turn back time and attach strings to the taxpayer’s investment in the banks was a sign of desperation. That his actions sparked a more unified effort by banks to rid themselves of TARP also suggests a major miscalculation.

Obama: “The only ones that are going to be paying out these fat bonuses are the ones that have now paid back that TARP money...”

It took a day following this line for Wells Fargo and Citigroup to figure out a way to pay back TARP.

A Dazed Obama Bounces Off The Ropes?

Obama began the year attacking bank executive compensation and talking about the need for a massive regulatory overhaul. When the banks owed money to taxpayers and the financial system was in disarray he had a great deal of leverage on these fronts.  Now that the markets have stabilized and banks are paying back TARP Obama has reluctantly backpedaled, saying “my interest isn't…[to] dictate to them or micromanage their compensation practices”. As for the regulatory efforts, Obama’s goal of regulating OTC derivatives participants without exception has already been eviscerated from the House Bill (H.R. 4173) and it is likely that the Senate’s version will come under even further attack.

Another pressing regulatory theme, at least according to Obama, is getting the “Consumer Financial Protection Agency” to come to life.

“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.”

Just as bank bosses do not voluntarily eat loses, they also do not voluntarily endorse any regulation that could curtail their profit making powers.  Yes Obama, the lobbyists wish to fight!

“Just last week, Republican leaders in the House summoned more than 100 key lobbyists for the financial industry to a "pep rally," and urged them to redouble their efforts to block meaningful financial reform. Not that they needed the encouragement. These industry lobbyists have already spent more than $300 million on lobbying the debate this year.” Obama. December 12, 2009

“…by the time the Glass-Steagall Act was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework.” Obama. March 27, 2008

Conclusion: Ding, Ding!


President Obama wants more regulatory eyeballs on the increasingly precarious financial marketplace, but he is unwilling to take up the challenge of actually making the markets any less precarious. To be sure, Mr. Obama has made absolutely no effort to breakup the banks, to curtail the Fed’s unmitigated powers, or to sort out the ongoing and growing mess that is Freddie and Fannie.  Moreover, Obama’s jab against the rating agencies – one of the major contributors to the crisis - is not even tantamount to a slap on the wrist. Instead Obama seems content to leave the systemically breakable financial marketplace alone so long as more police officers start walking the streets.

But all may not be lost. Along with Ron Paul’s noteworthy Fed audit plan, two bills are now in the works to reinstate the Glass–Steagall Act. The restoration of Glass-Steagall or any regulation that breaks up the banks would be a game changing issue that makes anything Obama is proposing almost inconsequential by comparison. Ironically, the threat of breaking up the banks (something Obama has been unwilling to support) may be what gives some much needed leverage back to the ‘fat girl’...

With current Treasury Secretary Geithner adamant that repealing Glass-Steagall did not cause the crisis and former Treasury Secretary Lawrence Summers one of the architects behind repealing the act, it will be interesting to see how Obama proceeds going forward.  At risk irritating the already irritated bank executives, will Mr. Obama finally start to follow the advice of Paul Volcker and throw his hat into the ‘break them up!’ ring? Or will he hold more meetings with bank executives and remind them that others wish to do them harm but that he can help so long as they support his plans? Whatever the outcome, it is clear that a major “fight” is brewing: The lobbyists are coming to town, they are checking their hit-list twice, and President Obama must soon decide whether to play it naughty or nice.

By Brady Willett
FallStreet.com

FallStreet.com was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules