This is a joke, right?” former US president Barack Obama told his advisers in 2008, amid the financial crisis, as recounted in his memoir “A Promised Land.” “You guys are just messing with me.”
Obama inherited the mess from George Bush, who tried to stabilize the system through the Troubled Asset Relief Program (TARP). Financial institutions received $700 billion in government aid, while unemployment soared, stock markets dived, people directed their rage at Wall Street.
Obama was incredulous about “the clueless attitude” of corporate executives, who even “authorized more than a billion dollars in year-end bonuses for themselves.” A bank even ordered a new jet, but Treasury head Tim Geithner successfully “browbeat” the CEO to cancel it.
Obama is known for grace under pressure, and in his must-read memoir, he mainly has positive regard for opponents such as Bush and Hillary Clinton.
When protesters labeled Bush a “war criminal” on the day he took his oath, Obama felt that “to protest a man in the final hour of his presidency seemed graceless and unnecessary.” Despite a bruising Democratic race, Obama cajoled Clinton to become his State Secretary, saying, “You’re too important for me to take no for an answer.”
For Obama to upbraid the “fat cats,” his frustrations must have been immense.
When two big bankers (he names them in the book) felt they did nothing wrong, “these claims were true only if you ignored the fact that the solvency of both outfits depended entirely on the ability of the Treasury and the Fed to keep the rest of the financial system afloat [and] … the fact that [one bank] had… peddled … and dumped [subprime derivatives] onto less sophisticated customers … before the bottom fell out.”
Obama was most incredulous with insurance giant AIG, which received more than $170 billion in bailout, but still paid $165 million in bonuses, with “a big chunk … going to the division directly responsible” for the crisis.
The CEO knew the bonuses were “unseemly,” but bank lawyers said that withholding payments might result in lawsuits and more damage later on.
“To cap it off, we didn’t appear to have any governmental authority to stop the bonus payments,” Obama said, “in part because the Bush administration had lobbied Congress against the inclusion of ‘claw-back’ provisions in the original TARP legislation.”
No wonder Obama thought that his advisers were messing with him. Senior Advisor David Axelrod wanted to stop the payments, even if unsuccessful. But Geithner and National Economic Council director Larry Summers felt that violating private contracts would “do irreparable damage to our market-based system.” Press Secretary Robert Gibbs retorted that “morality and common sense trumped contract law.”
Obama told the big bankers “to show some restraint, maybe even sacrifice.”
Far from showing contrition, the bankers acted as if “their feelings were hurt … They couldn’t understand why … no one was impressed that they had reduced their annual compensation from $50 or $60 million to $2 million.”
“I tried to understand their perspective, but I couldn’t,” Obama said. “Instead, I found myself thinking about [how] my grandmother … represented what a banker was supposed to be. Honest. Prudent. Exacting. Risk-averse. Someone who refused to cut corners, hated waste and extravagance, lived by the code of delayed gratification … The bankers … in a month made more than she’d made in her entire career … in part because they were okay with placing billion-dollar bets with other people’s money on what they knew, or should have known, was a pile of bad loans.”
But whatever his personal feelings, Obama realized that prosecuting executives or letting banks collapse entailed “violence to the social order,” not as much for the rich as for the poor. The economy might plunge into a depression.
So executives got their bonuses, and in time, banks paid back their bailouts. Geithner and the team executed stress tests, and a year later, the US economy was on its way to recovery. Get Barack Obama’s “A Promised Land” from National Bookstore. INQ (To be continued)
Queena N. Lee-Chua is with the board of directors of Ateneo’s Family Business Center. Get her book “All in the Family Business” via Lazada and the ebook version on Amazon, Google Books, Apple Books. Contact the author at blessbook.chua@gmail.com.