How Banks Need to Mollify the Public Sector

I just got off the phone with ProPublica's Dick Tofel; we talked quite a bit about the Goldman Sachs story they put out yesterday, but unfortunately they don't seem inclined to say anything on the record. One thing which is abundantly clear, however, is that right now banks, in the wake of receiving government cash injections, have to be very careful about anything they do which touches the public sector. Goldman (GS) isn't used to being a bank, but it's going to have to learn fast.

As Jeff Cane said yesterday, conflict with the likes of California's treasurers "is not something you want when government anger is increasingly being directed at Wall Street". They have a lot of political clout, and they're clearly unhappy at the kind of conversations which Goldman had with its buy-side clients.

My view is that this constitutes bullying tactics on the part of California: It's trying to prevent Goldman from sharing its opinions with its buy-side clients, by kvetching loudly to the press and (presumably) punishing Goldman by no longer using them to underwrite its bond issues. Companies often do much the same thing, when analysts put "sell" ratings on their stocks and bonds, but companies don't have the political wherewithal of states.

And it's not just Goldman which now needs to be much more aware of the possible political repercussions of its actions. Come January, the Democrats will control both the White House and Congress, and they're not likely to be very happy about things like this:

Banks are responding to the troubled economy by jacking up fees on their checking accounts to record amounts.

Last week, Citigroup Inc.'s Citibank started charging some customers a new $10 "overdraft protection transfer fee" to transfer money from a savings account or line of credit to cover a checking-account shortfall. Citibank had already raised foreign-exchange transaction fees on its debit cards and added minimum opening deposit requirements for its checking accounts...

With all these changes, the average costs of checking-account fees, including ATM surcharges, bounced-check fees and monthly service fees have hit record highs, according to a new study by research firm Bankrate Inc.

In other words, beleaguered Americans are bailing out the banks twice: once as taxpayers, and once as customers, forced to pay $10 fees for moving money from one account to another. They're not going to be happy about this, and neither are their representatives. And the banks should be coming up with plans right now for how they're going to mollify them. Otherwise, they could get bitten, hard.

Comments

[Jackson Cash:]

One can smoke all the banks -- the jig's up and the people lost.

Expect hell.

2008 Nov 12 11:53 AM

[dw57:]

i see what the banks have done and the bail out they got. but it doesn't appear they care what the public thinks. after all, until recently, they owned the government. The last election has only put a small dent in their ownership as I am sure they will figure out how to recover from that set back

2008 Nov 12 12:12 PM

[Smarty_Pants:]

Duh!

Gub'mint money ALWAYS comes with strings attached.

Now that they have a 'stake' in the banks' successes, the gub'mint won't hesitate to tell the banks how to run their businesses, whether those directives are economically sound or politically acceptable (usually not both). Raising fees is a resonable response to falling earnings but not a politically acceptable one. Political litmus tests will only further hurt bank recovery attempts.

In essence, the gub'mint is now "running" the banks as it will hold a defacto veto over any policy changes the banks make.

If my bank was accepting gub'mint money I'd find a new bank.

2008 Nov 12 12:42 PM

[Socialism c...:]

Banks are wrong to gouge in this way. But let's not direct our main anger at them. The real culprits here are those who pushed socialist housing on the banks and on taxpayers. Our federal government is out of control, regardless of current controlling party. It needs to be radically downsized. We accomplish this with 2 things:

1) A Balanced Budget amendment.
2) Abolishment of the income tax.

Those two things will force the Fed government to pay with money it has in hand, which WE then control by deciding to spend or not. It also restores to us the preemptive right to our own income. Government by the people and individual property rights -- two big outcomes. Let's do it!! Read more at fairtax.org.

2008 Nov 12 02:54 PM