American Bankers Protect Their Bonuses: The Economy Be Damned

Writing in the New York Times, Gretchen Morgenson tells us a seamy tale about American bankers who are rolling out the big bucks to hire lobbyists to flood the offices of Congress to slit the throat of fledgling legislation in the nest, legislation which has been proposed by the Federal Reserve Board and the Office of the Comptroller of the Currency. 

What the legislation is aimed at accomplishing is to make the banks hold more money in reserve, for a cloudy day, so when their bad loans and mortgages and schemes come back to bite them, they won't have to turn to the government for another bail out, especially if the are the too-big-to-fail variety of bank, which can take the whole economy down with it.

Of course, the banks should and sometimes do require collateral and big bank accounts from people who they lend money to--they want to be sure the borrower has enough in reserve, so if they fail, the bank can get its share. But when the government says, you have to have enough reserve, so when you fail we are not left holding the bag, well that is just foul play!

"The design of the new capital requirement would be much harder for bankers to game. They did just that with other types of capital rules, such as those issued under the Basel regimen, the international system devised by regulators and central bankers," Morgenson says.

The reason the bankers are so alarmed about the government's new idea is it would affect the bonuses due the CEO's by affecting the calculation of of "return on equity" which boards of directors typically use to calculate bonuses. 

The mouthpiece for the bankers is none other than Tim Pawlenty, fresh off the stage of Republican presidential candidates, who says--what do you think he would say: this proposal "would make it harder for banks to lend and keep the economic recovery going." As bankers, we are only thinking about you. 

Jeremiah Norton, of the FDIC says, "It should not have been as difficult as it has been for the agencies to come together on today's leverage-ratio proposal, which hardly seems like a seismic shift in capital requirements and represents an attempt to address one of the core causes of the financial crisis."

Remember the financial crisis?  The bankers and the Republicans hope you do not. They are pretty safe in hoping citizens have short memories. What crisis? What bankers? What mortgage backed securities. What, me worry?