The class warfare rage spewing from Obama and the Democrat cabal in Washington is only hurting the recovery, as banks and other financial institutions reduce their capital to get as far away from these demagogues as fast as possible.
Yesterday CNBC interviewed the CEOs of two regional community banks. Both are healthy banks that were recruited into the TARP program in order to facilitate increased lending. Neither of these banks has sub-prime exposure or balance sheets poisoned by toxic assets. Both CEOs said that they will likely return the TARP funds. One of the CEOs made the point that their executives are paid salaries that are somewhat lower than the industry average so that they can have a bonus structure that strongly incentivizes them to act in the best interest of the shareholders. The pay restrictions passed by the House would damage this structure and make it hard for them to do business. They’ll just have to give the money back and reduce lending by a relative amount (banks leverage up TARP capital 3-4 times in lending) – they’ll have no other choice.
What about all the vast majority of divisions in the banking and financial industry that are running health and profitable businesses, and had nothing to do with sub-prime mortgages, CDOs or credit default swaps? They are being financially penalized too. Let’s say are a senior manager (not an “executive”) living in New York and work at a financial institution that receives TARP funds, your salary is $200,000, and your spouse works at almost anything – teacher, firefighter, executive assistant, etc. You now have a household income that means you cannot receive a bonus even if what you do is a million miles from the parts of the business that screwed up. At Citigroup, the CEO says that they have purged all the bad actors. They’re long gone. But they’re not the ones the government is going after, only the ones that are left trying to rebuild the company and our financial system.
Meanwhile, I don’t seem to recall Barney Frank, Chris Dodd or any other of the congressional financial crisis instigators being financially penalized. I’m sure Mr. Frank’s and Mr. Dodd’s congressional pensions are still paying out a defined benefit at 100% potential. What about Larry Summers, who along with Robert Rubin pushed hard as members of the Clinton administration to expand the use of derivatives in the financial system? What about Alan Greenspan whose monetary excesses helped inflate the mortgage market? What about the former CEOs of Fannie and Freddie that committed accounting fraud and ran what amounted to a government guaranteed sub-prime hedge fund? Where is the outrage for this band of losers?