Daniel Howes

Feds' war on bankers is folly

What I want to know is, who'll be the next Ferdinand Pecora?

A former assistant district attorney from New York, he was counsel to the Senate Banking and Currency Committee and led the investigation into the Wall Street abuses blamed for the 1929 stock market crash, precursor to the Great Depression. His findings, according to author Ron Chernow, amounted to a secret financial history of the excesses that defined the big-money speculation of the Roaring '20s.

The assembled narrative became justification for some of the more draconian aspects of FDR's agenda, drawing strength from a populist fury the White House then used to advance political goals that alienated the business people who created jobs, or didn't. Sound familiar?

Eighty years on, there's no Pecora, per se, because whoever that person might be would quickly find the evidence leads from Wall Street, through both political parties and several presidential administrations and right back into the councils of Congress. Can't have that, can we?

Instead, we have Kenneth Feinberg, President Obama's pay czar, and his plans to cap the pay of executives at seven companies, including Detroit's General Motors Co. and Chrysler Group LLC. And we have Federal Reserve Chairman Ben Bernanke, who cheerfully described plans Thursday to "review" the exec comp plans of 28 large banks to ensure they don't encourage "excessive" risk-taking.

Now, I'm all for the feds being good stewards of taxpayer money pumped into the likes of Citibank and American International Group Inc., GM and Chrysler, GMAC and Chrysler Financial. The Treasury, after all, ranks among the top -- if not the largest -- shareholder in these enterprises, which would have failed but for the dough from you, me and overworked government printing presses.

But the Fed's play is the escalation of a war between the government and the financiers of business that this country doesn't need. Why? Because it needs confidence, job creation and lending to small business more than bureaucratic oversight of executive pay in publicly traded companies.

Big banks already have overseers. They are called regulators, shareholders and directors, who have a fiduciary duty -- and legal liability -- to ensure incentives are aligned with risk. Every bank in the nation didn't take the risks Citi took anymore than every insurer emulated AIG's Wild West credit-default swaps.

Right about now, skeptics will be saying, "Sure, defend the business guys who screwed up the country." Wrong. It's about those who didn't but are getting tarred anyway. Where does justification stop for asserting federal control over players in the private-sector economy who are not owned in some measure by the taxpayers?

At the banks? What about insurance companies and whatever health-care units they may have? Or the mutual fund houses like Fidelity and Vanguard who manage billions and shape retirement plans? Who else that receives federal funds -- vendors, colleges and universities?

The knee-jerk here is to frame the latest federal salvo at the private sector in partisan terms: Object, however philosophically, and you're a card-carrying plutocrat. Assent and you're anti-business at best, a creeping totalitarian at worst.

Wrong template. Bill Clinton had it right in '92 when his campaign coined the phrase, "It's the economy, stupid." The tagline helped him win the White House amid a nagging, if milder, recession. It's still the economy, stupid.

A government that spends more time lobbing rhetorical grenades at Wall Street and automakers, bankers and insurance execs, media outlets and other critics, is one that isn't laying the ground work for economic stability, generally a pre-condition for business investment that, yes, creates jobs.

Next time you feel exhilarated by the prospect of the bankers getting theirs -- or not getting much -- ask yourself how that can create a job in Detroit or Los Angeles. I'll help: it can't.

dchowes@detnews.com (313) 222-2106 Daniel Howes' column runs Tuesdays, Thursdays and Fridays. Catch him Fridays with Paul W. Smith on WJR-760.