Barack Obama faces a trillion dollar decision. Is he going to saddle taxpayers with the full cost of resurrecting our dysfunctional banks? Or is he going to share that cost with bank stakeholders(managers, bondholders, shareholders)?.
Money center banks know what is at stake and are maneuvering for maximum advantage. In the last few days, the managers of JP Morgan Chase, Bank America and Citigroup have each taken steps to try to preserve their jobs. Follow me over the fold to find out how.
Citigroup has booted their board chairman and installed Obama transition adviser Richard Parsons to work his DC contacts for the benefit of the failing and flailing behemoth. Parsons has been on the Citigroup board while the bank has suffered tens of billions of dollars in losses and required two multi-billion dollar tax payer bailouts.
JP Morgan Chase CEO, media darling and Chicago democrat, James Dimon, recently purchased 500,000 shares in his allegedly healthy bank to presumably prove that he has confidence in JPM's prospects.( This is a transparently phony move by Dimon and shows that he has so little confidence in his firm's prospects that he needs to try to manipulate other investors.) Also do not miss the recent full page JPM ads in the New York Times, gushing over all the loans JPM is making to environmental enterprises and local governments.
Bank America CEO and serial bumbler, Ken Lewis, has also tried the stock purchase ruse plus he has fired former Merill CEO John Thain to provide the appearance of holding someone responsible for the disastrous BAC/Merrill merger (If he had any integrity, he would have stepped down with Thain).
The trillion dollar question is will Obama be influenced by all these shenanigans and force the taxpayers to bankroll these very managers who've brought the system to its knees. Or will Obama be willing to stand up to Wall Street bankers (many are big Obama contributors), place these banks under government conservatorship, axe the managements and force bank stakeholders to share restructuring costs with taxpayers?
This is daunting decision for any president to make, much less a new president. But if Obama is not forceful in restructuring these money center banks, the economy is likely to limp through his entire first term and the treasury will be emptied into bankers' pockets. We all need to let Obama know that we didn't elect him to preserve the status quo in our failed banking system.