BANK LEADERS AGREEING TO OBAMA PLAN?
Mar 31st, 2009
Following a meeting at the White House with President Obama last Friday, top executives of the nation’s biggest banks said that they will work with the administration on its economic recovery plans, but want more specifics. As reported in the Chicago Tribune, Obama’s message was: ”Show some restraint. Show that you get that this is a crisis and everybody has to make sacrifices. They agreed and they recognized it.
Obama invited chief executives from the 15 largest banks to the White House to discuss the economy and other issues. Jamie Dimon of JPMorgan Chase & Co., Vikram Pandit of Citigroup Inc., Ken Lewis of Bank of America Corp., John Stumpf of Wells Fargo & Co., John Koskinen of Freddie Mac and Kenneth Chenault of American Express Co., were among those who attended. Treasury Secretary Timothy Geithner met privately with the CEOs on Thursday night, and sat in on Friday’s meeting. Obama urged the CEOs to deal with their toxic assets. Obama and the executives also discussed the administration’s plan to stem the rise in home foreclosures, its proposal for tighter regulation of the financial industry, executive compensation, the financial bailout program and the “importance of recognizing what the American public is going through in this economic crisis,” White House press secretary Robert Gibbs said.
Friday’s meeting capped a period marked by public outrage and Obama’s sharp language over Wall Street business practices and $165 million in bonuses that financially struggling AIG paid to some employees. Obama last week assailed AIG for “recklessness and greed” in its business practices, but he has since toned down his rhetoric. The administration needs industry cooperation for its economic plans to work.
The president emphasized that Wall Street needs Main Street and Main Street needs Wall Street,” Gibbs told reporters. He said the president stressed “that he had no agenda beyond working to get a solution, the right solution for our financial system and to get it stabilized and working again for the American people.”
I think Obama and the banks would like you to believe they will show some restraint, but I think no one is writing about what I think is really going on. Cramdown, voluntary mortgage modification and a life preserver from Washington DC are ships that have already sailed. Now that the Banks have demonstrated their clout in Washington, the average homeowner can expect nothing.
I’d wager a couple of bills that the banks have a new plan of action in place to recover from this mess. Think about it for a moment. Banks need to attract investors to recover. Investors want to see results; portfolios that are doing well. How will those portfolios be built? I’m guessing, but have you noticed at the foreclosure auctions, banks are starting to accept bids FROM OTHER BANKS (their friends) that are 50% less than the face value of the notes? What a brilliant idea. The bank selling at foreclosure gets to take a 50% write-off for the loss. The bank buying the property ends up with a property for 30% off fair market value. When the buying bank goes to sell at fair market, they show a profit to investors. Now the bank looks like its on the right track for its new investors. All the banks come out smelling like roses after this whole mortgage fiasco.
But you can’t create these foreclosure purchase profits unless you have properties going to foreclosure. You can’t have foreclosures if you have a broad policy to modify loans for the current owners. It’s no wonder that many of my colleagues and their clients are failing to achieve en masse positive modification results since the cramdown failed.
The financial incentives offered by Obama’s plan amount to throwing a kid a penny and asking him to go clean out all the mud pies in a 30 acre cow pasture. So don’t count on seeing the banks voluntarily provide fair and reasonable loan modifications in the future.
Without the stick of a cramdown the banks have already moved on to big fish to fry!