On March 27, 2009, President Obama and his economic team met at the White House with the heads of thirteen major U.S. banks: Ken Chenault of American Express; Ken Lewis, Bank of America; Robert Kelly, Bank of New York Mellon; Vikram Pandit, Citigroup; John Koskinen, Freddie Mac; Lloyd Blankfein, Goldman Sachs; Jamie Dimon, JPMorgan Chase; John Mack, Morgan Stanley; Rick Waddell, Northern Trust; James Rohr, PNC; Ronald Logue, State Street; Richard Davis, US Bank; and John Stumpf, Wells Fargo.
With the U.S. economy in free fall, the banks the beneficiaries of an extremely unpopular bailout, and a new history-making president in the White House, Wall Street was more politically vulnerable than at any point since the Great Depression in the nineteen thirties.
In his new book Confidence Men: Wall Street, Washington and the Education of a President, Ron Suskind describes what happened at the meeting:
The discussion moved swiftly across topics, such as the general soundness of the overall system and how to jump-start lending, before it came around to what was on everyone's mind: compensation.
The CEOs went into their traditional stance: "It's almost impossible to set caps; it's never worked, and you lose your best people," said one. "We're competing for talent on an international market," said another. Obama cut them off.
"Be careful how you make those statements, gentlemen. The public isn't buying that," he said. "My administration is the only thing between you and the pitchforks."
It was an attention grabber, no doubt, especially that carefully chosen last word.
But then Obama's flat tone turned to one of support, even sympathy. "You guys have an acute public relations problem that's turning into a political problem," he said. "And I want to help. But you need to show that you get that this is a crisis and that everyone has to make some sacrifices."
According to one of the participants, he then said, "I'm not out there to go after you. I'm protecting you. But if I'm going to shield you from public and congressional anger, you have to give me something to work with on these issues of compensation."
No suggestions were forthcoming from the bankers on what they might offer, and the president didn't seem to be championing any specific proposals. He had none; neither Geithner nor Summers believed compensation controls had any merit.
After a moment, the tension in the room seemed to lift: the bankers realized he was talking about voluntary limits on compensation until the storm of public anger passed. It would be for show.
For details from Confidence Men about the bank CEOs' reaction after the meeting, see here.
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