Wall Street, Bankers and the White House
They’re finally getting called to the woodshed. The heads of American Express, Bank of America, Capital One, Goldman Sachs, Citigroup, JPMorgan, Morgan Stanley, and Wells Fargo meet with President Obama today at the White House. It occurs to me that this is not all that dissimilar to something that occurred 47 years ago when John F. Kennedy when toe-to-toe with Big Steel. Sometimes the power of the Presidency can do wonders to reign in greed.
Back then, of course, it was a different world. Steel prices were a very big deal because the nation was still in post-World War II expansion and steel was the key behind the development of the interstate highway system, the auto and airline industries and the growth of the housing industry, then in the process of building America’s great suburbs.
In a nutshell, the Kennedy Administration had spent a great deal of time and effort mediating a major dispute between the steel industry and its labor unions in an effort to hold down the costs of steel. The Labor Secretary of the time, Arthur Goldberg, used his considerable influence with labor to help hammer out a deal in which there were no wage hikes and only modest increases in fringe benefits.
Three days later, the major steel producers announced a 3.5% across-the-board increase in prices. It was a slap in the face to the White House- as if to say “government has no role to play in the private sector, stay out of our business.” And of course, they had just benefited from the government’s intervention in their own labor problems to hold down the cost of union contracts. Do you see an analogy building here?
The U.S. saves the banking sector by offering huge tax-payer bail-outs and how do they respond? Just like Big Steel did in 1962. Only in this case the slap in the face wasn’t a mere price increase. Banks got intensely tight-fisted with their lending. They hiked interest rates on credit cards to loan-shark levels. While the nation’s unemployment rate spiked above 10%, thanks to government bail-outs, they prospered and Wall Street went right back to handing out huge bonuses.
Here’s what Kennedy did when he took on the steel industry:
1) The Justice department swung into action and announced it was investigating possible price-fixing.
2) The Pentagon announced it would enter into contracts only with steel companies that had bucked U.S. Steel and other big companies and kept their prices low.
3) The President held a news conference to explain why the steel companies were not acting in the public interest.
“The pubic interest.” Now that’s an interesting phrase. It implies that hand-in-hand with the raw and necessary capitalistic impulses of making profits, there might also be a sense of responsibility to the nation. Big Steel capitulated in less than a week and rolled back the price increases.
Likewise, the message is beginning to seep through to Big Banking. Even they are beginning to sense how disconnected they are from their customers. On 60 Minutes Sunday night, President Obama did the equivalent of JFK’s Big Steel news conference.
I did not run for office to be helping out a bunch of fat cat bankers on Wall Street. They don’t get it. They’re still puzzled why it is that people are mad at the banks. Well, let’s see. You guys are drawing down ten million, twenty million dollar bonuses after America went through the worst economic year that it’s gone through in decades, and you guys caused the problem.
Well, what do you know? Politico.com is reporting this morning that banking leaders will tell the President today that they are ready to “step up.”
Every CEO that’s participating is ready to a) listen and b) step up,” said an industry executive familiar with plans for the meeting. Everybody’s goal is to come out of the meeting with actionable, constructive and measurable things that the industry can do to spur recovery.
The bankers do make a legitimate case that they cannot return to the crazy drunken lending they offered to unqualified subprime mortgage customers that helped screw the economy in the first place. But, surely, even they have to realize the difference between that kind of lending and, say, small business loans. There will always be risk. But some kinds are manageable and some kinds are not.
Let’s hope they’re smart enough to figure out the difference and that the White House and the little people continue to hold their feet to the fire. Our jobs and our way of life are dependent on it.