Thursday, December 24, 2009
Surfeit begets insolence, when prosperity comes to a bad man.
— Theognis, c. 545b.c.
I hope the President didn’t take it personally. I’m sure no offense was intended. Even though bank presidents have shown they can single handedly almost sink the economy, they can’t control the weather that prevented their making it to the meeting. Of course some people might wonder why they didn’t leave a day earlier. A lot of people who have a morning meeting scheduled with the President of the United States would be very anxious to make sure they were in town the night before so as not to miss the meeting. Such a meeting is heady stuff even for a bank president. My guess is that the men all had good reasons for not arriving in Washington D.C. the night before the meeting and it was not, as some might think, a lack of respect for the President of the United States. A number of factors explain their actions.
One is that it was the middle of the holiday season and a Sunday night two weeks before Christmas is a time when there are lots of holiday parties. It is important for bank presidents to be in attendance to show that even though 12 months ago they were being bailed out by, among others, the people at the parties as well as lots of other people their cheerful demeanors prove that they are not the least bit nervous about the economy or the state of their banks. Another reason they may have waited until Monday to travel to see the President (if they were not partying) was to give them additional time to work for the benefit of customers, employees and shareholders.
Lloyd Blankfein, president of Goldman Sachs (who missed the meeting), was very likely spending the evening doing rough calculations as to how to divide up $16 billion in bonuses among his thousands of employees. That is a complicated calculation. He may also have been working on the speech he would give to his employees to explain why some of them would get bonuses in stock instead of cash.
Citigroup’s Vikram Pandit missed the meeting because Citigroup had a $17 billion stock offering on the same day as the meeting with the President took place. Mr. Pandit spent the day convincing investors they should buy some of the stock that was being offered. Thanks to those efforts Citigroup received $425 million in fees from the offering. In Mr. Pandit’s place Citigroup’s chairman, Richard Parsons was to attend, but having better things to do on Sunday night than spend the night in the capitol he waited until Monday morning to travel and because of weather had to miss the meeting. He may have spent some time Sunday night working on helping those struggling to pay their mortgages who were hoping to qualify under the “Making Home Affordable Program.” In November 2008 Citigroup said its intention was to reach out to 500,000 borrowers who needed help to avoid foreclosure. It said its program might result in $20 billion of mortgage refinancings. As of November 2009 it had fallen a bit shy of its goal. Of all mortgagees who were eligible for modification it had only entered into trial modifications Public 111009 FINAL.PDF with 100,126 homeowners instead of 500,000 homeowners and had only made permanent modifications with 271 borrowers out of the 231,000 who were estimated to be eligible.
John Mack of Morgan Stanley was probably also spending Sunday night trying to figure out how to help those threatened with foreclosure who were in distress. Morgan Stanley’s subsidiary, Saxon Mortgage Services, Inc. had an estimated 80,000 eligible loans and had 35,565 trial modifications going on but as of the end of November had only made 42 of the loan modifications permanent. The rest were still awaiting approval. Of course he might have been toasting the fact that although those numbers are not impressive, when its permanent loans modifications are added to its trial modifications it turns out that 44% of its loans have been modified or are in the trial stage and that, percentage wise, places Public 111009 FINAL.PDF it at the top of all the Servicers in the program.
The “Making Home Affordable Program” has been in place for slightly over a year. The Treasury Department estimates there are 3,299,780 people eligible to participate in the program. As of the end of November only 31,382 have received permanent modifications. The three presidents who missed the meeting are probably keenly ware of the failure of their institutions to do more for those in trouble. They may even feel a bit of guilt about it. Not enough, however, to have made sure they’d get to the meeting with the President on time. And not enough to cause them to forego their large bonuses.