Banking Crisis: Money-Spinning Operation for the Financial Giants

Obama Applies Pressure of Shame to Wall Street Banks

December 13, 2009

TIME - ... Expect a healthy dose of political posturing before, during and after the President's meeting with top bankers Monday. "It's a p.r. stunt," says an executive at one of the banks that will be getting a dressing-down at the White House meeting. Executives from Goldman Sachs, JPMorgan Chase, Bank of America and Wells Fargo are expected to be among those in attendance.

(See 25 people to blame for the financial crisis.)

Even Administration officials privately admit that politics played a role in calling the meeting, and President Obama's harsh words for bankers on Sunday's 60 Minutes program reinforced the notion. During an interview on the CBS show the President said he didn't run for office "to be helping out a bunch of fat-cat bankers on Wall Street," adding that "people on Wall Street still don't get it."

But Obama's bank-bashing is about more than politics. The President has real problems only the banks can help him solve. On jobs, housing and the strength of the economy, he needs bankers to change their behavior, and there's only so much he can do to force them. So when he sits down with the financial industry élite on Monday, he may talk tough, but he'll also be asking for their help.

For many in the Administration the biggest economic concern is the country's stubbornly high unemployment. The best way to attack that problem is to stimulate small-business growth, but that won't happen as long as banks sharply limit lending to smaller companies. For their part, bankers feel they are responding prudently to a tough economy by tightening loan standards across the board. And while some of the biggest banks are healthy enough to pay back the government's emergency loans made from the Troubled Asset Relief Program, many smaller banks remain in crisis. So far this year the Federal Deposit Insurance Corporation has shut down 133 banks that succumbed to a tidal wave of loan defaults.

"Given the state of the markets there's only so much we can do," to increase lending while limiting risk says one industry official.

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So Obama will alternately threaten and plead with banks to open their purse strings.

"One of the main messages from this meeting is that the financial industry received extraordinary help from the government — and ultimately the taxpayer — and now the industry has an obligation to help the small-business owners," says White House spokesperson Jen Psaki.

The housing crisis, too, is a political sore point. Last week Treasury announced the initial results of its program to rewrite troubled residential loans. So far, of the more than 3 million past due loans at banks participating in the government's $75 billion loan-modification program, just slightly more than 30,000 have been permanently adjusted so the mortgage holders can make lower, government-subsidized payments. That means millions of troubled homeowners and millions of potential bad loans still on banks' books, perpetuating the uncertainties and fears that can undermine any economic recovery. Obama wants the banks to move faster to rewrite the loans.

Obama will also criticize the banks for trying to derail financial-regulation reform, which passed the House last week but faces multiple battles after Christmas in the Senate. And he'll scold them for continuing to distribute high bonuses, especially when they reward excessive risk-taking. The senior bank executive at one of the banks meeting with the President Monday describes the process as a "public spanking" and says other than the public humiliation the Administration has little leverage...

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