In the last few days, the CEO’s of the nation’s three biggest banks — Bank of America, JP Morgan Chase and Citigroup — have come forth to pronounce that their banks are fine, profits are up, and whatever you do, please don’t nationalize:
Bank of America’s Ken Lewis: “The last thing we need to do is start nationalizing banks.” Full-scale nationalization “would be a nightmare.”
JP Morgan Chase’s Jamie Dimon: I don’t think any bank should be nationalized. It doesn’t work. It’s a mistake. Some need aid and help, but they should stay as private as possible.
Citigroup’s Vikram Pandit: I am most encouraged with the strength of our business so far in 2009…I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position.
It’s understandable that these CEOs are out making the case for the soundness and stability of their institutions. For months they’ve been watching their stocks sink, and hearing Nobel Prize winning economists say that their banks need to be taken over. Now, after a few days of rising stock prices, they are jumping at the chance to regain some credibility, quell investor fears, and save their jobs.
However, their optimism should not be taken as a sign that the banking system is fixed or that more action will not be necessary. The toxic assets clogging the banks are still just sitting there, and until those assets are dealt with, the banking system will not be made whole. As David Smick pointed out, when it comes to the banks “at least one thing is certain: Our present position is unsustainable“:
The longer we delay fixing the banks, the faster the economy deleverages, the more credit dries up, the further the stock market falls, the higher the ultimate bank bailout price tag for the American taxpayer, and the more we risk falling into a financial black hole from which escape could take decades.
Karen Shaw Petrou, managing partner of Federal Financial Analytics Inc., told Bloomberg that “skepticism lingers about the bankers’ forecasts.” “Whether they will be profitable remains to be seen because with the possible exception of Mr. Dimon, the others have been hugely wrong a lot,” she said. And until the banking system is cleared of its toxic assets, with the behemoth, too-big-to-fail institutions dismantled, it will not be fully functioning or in any shape to play a role in the economic recovery.