http://www.nytimes.com/2009/03/25/opinion/25desantis.html?_r=1&ref=opinion
Today a letter of resignation from one of the AIG-FP bonus recipients was published in the New York Times. His letter is consistent with what I wrote the other day that probably 10-15 people at AIG are responsible for the CDS excesses that brought the company down - but the Democrats want to punish everyone there. This guy’s approach of donating the bonus to charity instead of returning it to AIG or the federal government is sensible - and his frustration and sense of betrayal with how he has been treated by the company and the government comes through clearly.
A lot of these people that Obama and Congress are demonizing in the U.S. financial industry are leaving to go where our government can’t abuse them. The U.S. financial industry is one of America’s crown jewels, and the Democrats are committed to not allowing it to succeed in the future. Vengence trumps constructive solutions. It will be a real shame to lose our leadership in this field.
Some are ending up at places like British Petroleum, where commodity hedging is essential to smoothing out volatile oil and gas prices. Others will go to places like Southwest Airlines, who has maintained a significant competitive advantage through far superior fuel hedging strategies than the other airlines. Many companies will hire the best talent to hedge interest rate risk. The big multi-nationals need top talent who are adept at managing foreign exchange exposure.
The hedge fund industry and other private equity groups are raising capital increasing their activity after a long hiatus. Many will go there. Lots of talent will join foreign financial companies that are not under Barney Frank and Barack Obama’s "non-rule of law”. The head of one of BofA’s Merrill unit had to rush to London the other day to convince a large group of talented players not to leave the firm in mass. Like Sarbanes-Oxley, Congress and the Democrat business morality police will drive capital and talent off-shore, or into less regulated private equity ventures. It is a real shame that the Democrats seem so committed to preventing the U.S. from maintaining and reassuming its leadership role in world finance.
BofA will start returning TARP money in April, CEO Ken Lewis announced today. Of all the major national banks, with the exception of Citigroup which is by far the worst off, BofA needs the money more in order to backstop the Merrill Lynch deal. Unlike Goldman Sachs, which will be able to pay it back in one lump sum, BofA’s return of TARP money will take time.
When the extent of Merrill’s loses became clear before the deal closed, Lewis went to Treasury and told Secretary Paulson that he could not go through with the deal due to the size of Merrill’s loses. Treasury very much wanted BofA to follow through. To not do so would have meant Merrill Lynch going the way of Lehman Brothers. The government agreed to provide temporary capital so BofA could absorb Merrill’s loses and guarantee addition losses beyond a certain point.
The bottom line is that with Goldman Sachs announcement yesterday, and BofA’s today, there will be tremendous peer pressure to get out from under TARP. To not give the money back will now be seen as a sign of weakness, which is death in the financial services industry where so much depends on counter-party trust.
If Congress could just shut up for 5 minutes it would be a big help. If Obama could excert some actual leadership in standing up to the mob in Congress it wouldn't hurt either.