Jamming the Banks – Part 2 May 13, 2009
Posted by wonderingin in Banking, Financial Markets, Regulation.add a comment
The Chrysler squeeze on the banks was just the warm up in the Obama Administration’s plan to re-make the economy.
It turns out the the compensation choke hold so far applied only to those banks receiving TARP money will be expanded to an industry wide system for all of financial services. (U.S. Eyes Bank Pay Overhaul – WSJ)
Senator Charles Schumer’s proposed legislation to require stockholder votes on executive compensation among a list of other new requirements would set the stage for the extension of the coming banking rules to the rest of corporate America.
Stay tuned – democracy in action is a wonderful thing!
Jamming the Banks May 11, 2009
Posted by wonderingin in Banking, Regulation, The Economy.add a comment
“You don’t need banks and bondholders to make cars,” said [an Obama] administration official. WSJ, 5/11/09
The evidence continues to mount that President Obama and his cadre are intent upon re-making the American economy in their own image. We are entering an era of government industrial policy making unlike anything we have ever seen. Mr. Obama knows very little about business and cares even less. Fasten your seat belts for a very bumpy ride.
The banks and other financial intermediaries have played right into the hands of those who desire a more subservient European style capitalism. It’s the reverse of the old trope “You saved my life and now I owe you” as in
“we (the government) saved your bank and now we own you.”
Stay tuned for continuing episodes of As the World Turns, better known as Capitalism Roasting on a Spit.
Banking utilities – Part 2 May 6, 2009
Posted by wonderingin in Banking, Financial Markets, Regulation, The Economy.add a comment
In earlier posts, we spoke to the notion that regulators may be forced into rationalizing the biggest banks as banking utilities – essential players in the economy whose future scope of action will be constrained by regulators’ views about what is good for the economy as a whole rather than just the interests of the banks’ shareholders.
Now the fight is on as The New York Times reports that the private equity community is pushing to allow P/E firms to control as well as invest in big banks – a step in the opposite direction.
Bank managements currently work for shareholders with an eye over their shoulders for the regulators. The utility approach would likely require banks to operate more directly in the interests of the economy while they are allowed to earn a “reasonable return on their capital”.
The dilemma – banks need capital and the P/E firms have a lot. But I do not see the Federal Reserve backing down on the shift toward utility status. The economic stakes are too high and bank managements are already too difficult to control before one considers the predilections of the P/E players.
On the other hand, vultures play a useful role in nature – cleaning up messes. And vulture capitalists, er P/E firms, can play a similar role in cleaning up the current economic mess.
Banking utilities are coming, but the Federal Reserve will ultimately wiggle enough to let the P/E guys help clean up the banking system albeit without the unilateral economic control to which they are accustomed.
