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| Pandit defies Schumer |
| Bloomberg / Washington Jul 23, 2009, 00:00 IST |
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At the Bank of America Corp office in Washington, employees are fielding as many as 10 calls a day from Capitol Hill, up from about two a year ago.
Senator Charles Schumer telephoned Citigroup Inc Chief Executive Officer Vikram Pandit to protest the withdrawal of a mall developer’s credit. Representative Elijah Cummings said American International Group Inc should withhold bonuses. Senate and House panels summoned General Motors Corp. CEO Fritz Henderson twice in nine days to justify dealership closures.
The companies are among more than 600 that taxpayers have stakes in after the US bailed out banks, carmakers and insurers. That put members of Congress in the unfamiliar role of shareholders, said Robert Solow, professor emeritus at the Massachusetts Institute of Technology in Cambridge.
“To be a major equity owner in so many corporations is not something that we’ve done before,” said Solow, a 1987 Nobel laureate for his theory on economic growth.
The result is a drain on executives’ time and energy as legislators command attention and company officers fret about actions that might arouse congressional anger, said CR “Rusty” Cloutier, CEO of MidSouth Bancorp Inc.
“You’re scared to do anything,” said Cloutier, whose bank holding company in Lafayette, Louisiana, took $20 million in Troubled Asset Relief Program money. “It’s gotten insane.”
Most corporations appear not to have altered business decisions in response to pressure from lawmakers, according to Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, and author of a history of Wall Street.
Politicians keep trying, said Representative Mark Souder, an Indiana Republican.
“We’re micromanaging,” Souder said at a July 16 House Committee on Oversight and Government Reform hearing. “Congress is going to start to tell people what kind of tie they can buy if we’re not careful.”
It’s natural for elected officials to make demands on corporate officers, and the money the government has loaned gives lawmakers new rights, said California Representative Brad Sherman, a Democrat on the House Financial Services Committee.
“If you pay for them, you own them,” Sherman said.
Now, as members of Congress debate President Barack Obama’s proposed overhaul of the financial regulatory system, they also have to figure out how best to behave as guardians of voters’ investments, he said.
“We’re flying by the seat of our pants,” Sherman said. “This idea of capitalism with bailouts doesn’t follow any political or economic theory or principle.”
The US began recapitalising the private sector through the $700 billion TARP in October, aiming to alleviate the deepest recession in 50 years and repair damage to the financial system. The government acted after Lehman Brothers Holdings Inc declared bankruptcy and the Federal Reserve rescued insurance giant AIG, based in New York. Taxpayers own 77.9 per cent of AIG and about 60 per cent of Detroit-based General Motors Co, created from the old automaker in a government-backed bankruptcy. The US may own as much as 34 per cent of New York- based Citigroup when the company completes an equity exchange.
The danger for capitalism is that executives will make decisions based on politics, not profit, said Charles Elson, director of the John L Weinberg Center for Corporate Governance at the University of Delaware in Newark.
He cited General Motors’ delaying the closure of a warehouse at the urging of House Financial Services Committee Chairman Barney Frank as an example.
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