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Obama and the banks

GB Geo-Blog

Obama and the banks

During the past week, President Obama’s advisers expressed their disappointment with the behavior of the major banks. I can understand their frustrations with the new rounds of bonuses, which the banks will bestow on their employees, since their survival and recovery stemmed primarily from the actions of the Fed and the Treasury. However, until the government decides to do something real about corporate governance, bonuses and executive compensation will continue to irritate them and most Americans as well.

However, I have problems with their two complaints. Rahm Emanuel, the White House chief of staff, scolded the banks for aggressively lobbying against the regulations the president and his supporters in Congress are trying to approve. David Axelrod, another key advisor to the president, also called the lobbying by the banks offensive.

Both men hinted that the banks should be appreciative of the lifelines they received, and thus be supportive of the government’s initiatives. This attitude only plays into the hands of critics who warn against government involvement and government ownership. In effect, Emanuel and Axelrod are saying that if you receive any government assistance, you lose the right to be critical. Whatever happened to freedom of speech? Regardless of whether or not I believe that lobbying serves a useful purpose, I worry that this sets a dangerous precedent to squash opposition via veiled threats.

The other complaint focuses on the reluctance of the banks to increase their lending, particularly to small and mid-size companies. Axelrod stated on one of his TV appearances: “The most offensive thing is we haven’t seen the kind of increase in lending that we should.”

Does the government now believe that it knows better which borrowers are creditworthy and should get loans? Does the government also know what the appropriate rates of interest should be for these loans? (Is liberal arrogance beginning to raise its head?)

You cannot admonish the banks for making reckless loans in the past, and then criticize them for being shell-shocked and wary of making new loans when the economic recovery is still in its infancy. Isn’t one of the reasons the U.S. got into this mess is because the government thought it was a good idea for the banks to increase their lending for housing?

So I want to see if I understand the government’s position: it wants to change the regulatory system in order to prevent a replay of the sub-prime fiasco, but at the same time, it wants the banks to increase their lending, in these uncertain times, to small and medium size companies.

The more things change, the more they stay the same!


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