The White House, Bank Lending and PR Ploys

by: Wall Street Strategies

One of my favorite books (some even consider it required reading for business) is Sun Tzu's "The Art of War", whose military tactics are both common sense and brilliant. I wonder if some executives in the land are adopting his philosophies in this public relations war with the White House. Two of his tidbits that come to mind after all the news of last week include:

  • "He who knows when he can fight and when he cannot will be victorious."
  • "Pretend inferiority and encourage his arrogance."

Today, the White House plays host to bank executives in a public relations ploy in which they will say that they are trying to force banks to lend more money. These kinds of public humiliation adventures haven't worked yet, and in fact, make business even more leery of the White House, unless you are a company that stands to make much money through government contracts, like General Electric (NYSE:GE). CEO Jeff Immelt's speech at West Point last week was a travesty. Of course there has been greed in the business world and it's not a new phenomenon. Moreover, judging greed is difficult to do, and if one suggests companies trying to get larger is an example of greed then I'm inclined to disagree. When a CEO of a major corporation says that he thinks government intrusion is a good thing I have to scratch my head.

As I read comments from Mr. Immelt, I could hear the voice of President Obama. It is obvious the GE chief is on board, but others might be biding their time. After being summoned to the White House, the CEO of Duke Energy (NYSE:DUK) came out in favor of cap and trade the next day. Last week, Goldman Sachs (NYSE:GS) announced that it wouldn't pay bonuses in cash but instead in restricted stock that must be held for five years. (I think that these executives will still have to pay taxes on these "bonuses.") I sincerely don't think that Jim Rogers, CEO of Duke Energy, believes cap and trade will be a net creator of jobs. His statement that passing climate legislation will "give us the rules of the road" makes sense, however. Maybe that is the only silver lining; understand what the rules will be although they are more than likely going to change. I suspect that the administration will choke businesses, see how they react, and then squeeze a little harder.

Either way Mr. Rogers is on board, but he didn't have a choice, right? Lloyd Blankfein, CEO of Goldman Sachs, understands that he has to bide time, which is why the Goldman Christmas party is at Moe's Diner this year. Goldman Sach's top 30 executives will take stock in lieu of cash bonuses, be prohibited from selling for five years, and even face claw back provisions. For a well-run company like Goldman this is a good way to try to appease the White House. But the last big business scandal saw as its source the manipulation of stocks through false accounting and a stream of lies.

So that brings us to today's meeting at the White House. It's going to be tough on members of the financial community in attendance. Oh, yes, there will be serious strong arming and I'm wondering if there will be many union members, green organizations, and community organization groups in the room like the meeting with energy executives this week.

I would like to see these banks lend more too, but if the Fed is going to keep rates at zero and Treasury is willing to buy crappy assets then banks don't have to lend. The irony is that the White House says lend then says banks can't take excessive risk. David Axelrod batters the industry in the morning and regulators say banks have to raise capital ratios. Still, nobody is less popular than bankers, and there could be the equivalent of an EPA weapon of mass destruction we don't know about.

At the end of the day, banks lend to make money, and all of that cash sitting on their books is normally considered a liability. I would hope easy money making mechanisms are removed and management feels the coast is clear, economically, and there will be more lending. The irony is that if there isn't more lending, the finger can only be pointed in one direction, and that's Washington. President Obama keeps talking about "risky behavior" and Congress wants the power to break up companies it deems too big or too at risk. Talk about a lack of incentives. It's any wonder banks aren't lending less. But this is really about control as Congress fights to remain relevant and the White House fights to be omnipotent with unlimited power. Czars and agencies like the EPA are forming a beast the farmers fear more than anything else.

Disclosure: None