As the government continues to bail out the banking industry and taxpayers continue to increase their stake in these companies, how far should the banks go to cut back spending on the excesses that have grown over the past several decades? The local New York City NBC news program aired a feature on the use of town car limousines by Bank of America, JP Morgan Chase, Morgan Stanley, and Goldman Sachs. Despite billions of dollars from taxpayers, bankers continue to travel extravagantly when more frugal options are available.
The media love this topic. Exposing the continued excesses of troubled companies destined for bankruptcy or in search of taxpayer assistance riles up people’s emotions. That’s the perfect formula for great ratings. The concept is simple: the reporter stands outside the corporate offices, counts the limousines waiting outside to take bankers to lunch meetings with clients or home at the end of the long day. They try to interview the bankers who refuse to talk to the cameras. (Corporations generally tell employees not to talk to reporters under any circumstances, to allow the marketing department — “public communications” — to control the public message.
The marketing departments aren’t doing a very good job. The court of public opinion is important here, as stock prices in the financial industry are tanking. Yes, the banks should do whatever they can to cut back on all these little expenses like limos and parties that add up over time. Yes, they should not use bailout funds to make poorly researched major acquisitions. Just like typical personal financial advice for managing a family’s money, corporations that are now somewhat accountable to the public should focus on both the repetitive small expenses (see the ECRD Factor) and the more expensive decisions (like buying a used car rather than a new car). But most importantly, the industry should be communicating that they understand that the gift of taxpayer funding means they have a new stakeholder, a new boss who cares about how their money is spent. Marketing departments should be ensuring the public sees the extent that the companies are utilizing the funds responsibly.
Brokerages that accepted bailout funds have rationalized the continuation of high salaries and bonuses for their best performers by citing the need to keep top talent. Yes, this does mean that the executives are fine with the concept of “wealth redistribution” when it works in their favor. In these cases, taxpayers are funding the compensation for investment managers and stock brokers whose salaries continue to soar while their companies’ profits sink.
Executives of some banks that received money in the form of bailout have stated they don’t like the terms attached to the funds. Two banks, Northern Trust and US Bank, will return the funds they received through the Troubled Asset Relief Program (TARP) to the government, as fast as possible, so they do not need to answer to the public. This is an interesting concept; in most cases, the TARP funds were in the form of loans to banks, which were intended to be returned to the government with interest anyway. Of course they are returning the bailout funds as soon as possible. That was the plan from the beginning.
Banks who don’t agree to reducing expenses and answering to the public should return the funds in entirety immediately, not over time as quickly as possible.
Put yourself in the shoes of the top executive in a bank that was facing bankruptcy when it asked for an accepted billions of taxpayer dollars. You are the CEO. Assuming you haven’t been fired for nearly driving your company into the ground, what financial decisions would you make to fix your struggling enterprise while maintaining a favorable public opinion?