Margaret Carlson: Obama passes one test, flunks a bigger one

Joe Biden was right: The president would be tested abroad soon after taking office. The challenge came in the Horn of Africa and Barack Obama passed.

If only he stood as firm against the rulers of Wall Street who’ve held America hostage for months. Since taking office, Obama has shown a stunning willingness to spend money and not call anyone to account for breaching the few strings he’s attached.

When the bankers complained about pay restrictions imposed by Congress, the Obama administration quietly worked out a mechanism by which the banks could avoid the rules and still receive bailout money, according to a report in the Washington Post. The Treasury denied that bankers were getting any such break.

 

Big banks are hardly so big anymore, yet their weakness has given them the upper hand. Pay me or I’ll fail. They are outraged that they would have to pocket less money than before they ruined the economy. So some are threatening to take the shell of a bank that’s left and go home. Treasury to banks: Well, if you say so. Here’s another hundred billion.

Consider the nice memo regulators sent to bankers asking them not to say anything about their financial condition until the government finishes its “stress tests” of the lenders. Touting their own fine health would make it harder for the Treasury to issue negative assessments.

NO STRESS HERE
Rather than comply with this modest request, the banks raced to boast about how great they are doing. Citigroup and Bank of America made positive statements about the current quarter, and John Stumpf, the chief executive officer of Wells Fargo, said the bank was in good shape as it said it earned an estimated $3 billion profit in the first quarter.

Of course, the banks have little to worry about from the stress tests. They’ll be about as indicative of their health as an examination of a 300-pound patient walking 2 miles per hour on a flat treadmill at the cardiologist’s office.

Not only that, the proctors are grading on a curve since the Financial Accounting Standards Board relaxed mark-to-market accounting rules, which require banks to assess assets each quarter to reflect market prices. The Treasury knows that actually labeling toxic assets, recently renamed “legacy” assets, at their super-discounted value would give the system a heart attack.

Obama defended his actions in an April 14 speech, saying that while it makes sense morally to go hard on the bankers, it’s not practical “because it is more likely to undermine, than to create, confidence”.

UNDER THE BUS
That’s because the executives have convinced the president to reward the geniuses who got us into this mess as the only ones who can get us out. That means Obama can throw the CEO of General Motors under the bus but not a banker.

In his first interview since the meltdown, Gerry Pasciucco, head of American International Group’s Financial Products business, told the Wall Street Journal that not paying bonuses “could have very significant business ramifications”, as 20 of the unit’s 370 employees left since the dustup. AIG employees are so “stunned” that they might not get their usual pay that “taxpayers probably have been damaged”.

In other words, if you want kidnapped taxpayers back alive, hand over the rest of the money in unmarked bills or we’ll really ruin the economy.

Maybe the president should call them on the threat. After all, 23,300 people lost industry work in New York in the year through February. The city estimates the crisis will cost another 23,000 jobs over the next year. You need a billion dollars to start a hedge fund. Pensions are pretty much spent out. The only uncle with that kind of money is named Sam and he’ll be broke soon.

On April 13, Goldman Sachs Group said it planned to return the federal money. Goldman and other banks don’t want to abide by pay guidelines, even ones with loopholes large enough to drive a Brinks truck through.

If the president can’t stand up to the bankers, he could at least get angry. Yet each time he tries — getting choked up just doesn’t work — he’s as natural as a police officer pulling over a speeder and saying “Can’t we be friends”.

After the wrenching trouble they’ve caused the general population not lucky enough to have pocketed millions from reckless bets, the bankers should stop whining about the mild guidelines being suggested. At least Obama should quit listening.

When you’ve gone into a burning building to save someone from a fire they started, you are entitled to set the rules in the burn unit.