Every year, hoards of people gather in the Northern Nevada desert to celebrate an event known as Burning Man. Tens of thousands of participants literally set up a temporary city in a dry lake bed for an eight day celebration of art, music, and community. Needless to say, this type of camaraderie has been lacking between Washington and what used to be Wall Street lately. So today, President Obama called banking executives to the White House for a much smaller gathering involving fewer Grateful Dead bootlegs, way more power ties, and hopefully a renewed sense of peace, love, and happiness.
Ostensibly, Obama hopes to cool tensions between the Beltway and the banking sector by offering an olive branch to a group that has gone from being hailed as industry titans to being vilified as captains of the Titanic. Obama claims he didn't arrange the meeting in order to berate the bankers about bonuses, bailouts, or bad assets. That's probably a wise move on the President's part because if the accusations start flying, they're likely to fly in both directions as the government is responsible for its fair share of gaffes of late. Instead, the discussion will focus on the state of the economy and how to repair the cracks in the financial sector.
Already it's been a tumultuous 2009 for the banking industry, and we're not even through the first quarter. Banks have been roiled by uncertainty, much of it emanating from politicos. The regulatory missteps of last year could fill a lengthy tome, and this year has been only slightly less eventful. It started with compensation limits for executives of banks accepting Troubled Asset Relief Program (TARP) funds. Next, Treasury's initially poorly defined stress test cast a cloud over the industry by raising the specter of nationalization for any institution that didn't pass muster. Then, AIG's bonus imbroglio extended to the banking sector when the House of Representatives hastily crafted a plan to apply a 90% tax to bonuses granted by firms receiving taxpayer funds, including many banks. Finally, Treasury Secretary Geithner proposed massive regulatory reform and new plan for dealing with banks' legacy assets. The result of this ruckus: bank shares have been pummeled. The KBW Bank Index, which tracks US bank shares, is off almost 34% so far this year despite rising nearly 60% from its March 6 low.
The majority of the Obama administration's initiatives to reinvigorate the economy in some way involve the banking sector. So the President is well aware a quick recovery from our current economic doldrums will require buy-in from today's houseguests, making fence mending a top priority. It's highly unlikely this group will finish the day in a drum circle singing Kum Ba Yah or torching an 80 foot effigy of former Lehman Brothers CEO Dick Fuld as they might at Burning Man, but we'd be satisfied with a mutual understanding about how Washington and bank executives can work together to put our financial system on solid footing.
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