Here is my wish for the New Year 2012 a few months early:
Wall Street creates a transparent Brain Trust to solve socio-economic problems and make nonpartisan recommendations to the government. In other words, top minds in finance analyze the economic system from a “how to help society” platform. You may call it wishing on a star, but at the Bloomberg 50 Summit in midtown Manhattan this week, it seemed almost possible. More concrete workable solutions emanated from 45 minute panel discussions with financial industry giants at St. Bart’s Church on Park Avenue than in the past two years of official political debate.
In his opening remarks Daniel Doctoroff, CEO of Bloomberg LP, expressed that in 27 years in business, he has never seen such a complex confluence of social, economic, and political challenges as currently faced in the U.S. In a panel discussing “Bernanke’s Balancing Act,” the consensus was clear: Federal Reserve Chairman Bernanke must act forcefully and decisively in the absence of effective leadership in Congress or the Administration. The familiar issues were the choice between stimulus and austerity. John Taylor, CEO and Chairman of FX Concepts, pointed out that, “You can’t create growth if you create austerity.”
Don Brownstein, CEO of Structured Portfolio Management, emphasized the question is less of what to do from an economic perspective than “What should we do from a moral perspective?” Brownstein’s call for a moral agenda set the tone for the day. None of the usual partisan doublespeak was present; in its place were refreshingly productive discussions on real solutions for real people. These were hedge fund, portfolio and private equity managers speaking from the same sense of economic urgency the rest of us feel. We need to plug the holes in the system and fast was the repeated call for action.
Brownstein detailed the primary issue was that banks are not lending to business at the lower levels. The portfolio manager emphasized the problems that regional banks were experiencing: the mandate from government to lend and the regulatory paralysis that restricted them from doing so. He claimed the large global banks that supply the life blood of capital and credit for big business and Fortune 1000 companies are backstopped with low cost Federal Reserve credit and easier regulatory environment for corporate bond issues. The regional banks live in fear of being taken over by the FDIC. “The fundamental policy on the ground is not the same as the top,” Brownstein stated.
Bloomberg moderator, Kathleen Hays said the federal government trickle down policies didn’t work. Lowering interest rates didn’t help the capital get to the people who really needed it. Bruce Kasman, Chief Economist for JPMorgan, claimed it was left to the Federal Reserve to enact bold fiscal policy to get the engine moving and reduce the unemployment rate. “The Fed is not impotent,” he stated. “If we look to Washington, it’s a dangerous game…Washington is not functioning in a way to have confidence.”
Brownstein concluded another fiscal stimulus was needed. The government needs “to put money to work…If there was ever a time to spend money, this is the time…People are willing to lend the U.S. money at 3%. We would be crazy not to do it.” Regarding inflation, Brownstein detailed that the widening distribution of wealth and income is a more serious concern. “We know how to manage inflation. Not having a job is worse than inflation. A recession is when a neighbor loses their job. A depression is when you lose yours,” he stated flatly. “Lenders have benefited at the expense of borrowers. Inflation would turn the tables on them.”
This theme of poor circulation of credit was echoed throughout the day. Bob Doll, Vice Chairman of world-class money management firm BlackRock, summed up the dilemma in which businesses find themselves. Business leaders are “not willing to commit to more expense through hiring or expanding.” They are “waiting to see what will happen in Europe and sitting on their cash.” Carrie McCabe, CEO of Lasair Capital, said corporate balance sheets were better than ever. She stated, “Companies are extremely cash rich right now.” James Melcher, founding partner of multi-billion dollar hedge fund Balestra Capital, claimed the aim of the Federal Reserve bailout was to flood the system with capital. “But it didn’t get into the system; it stayed in the top’s hands.”
Business leaders can’t be blamed for concerns and caution around spending. Ordinary companies don’t have any safety net other than fiscal common sense. The job of the C-Suite is to maximize value for stockholders, not to bail out society and reduce unemployment. If a coordinated action on the part of corporate CEOs to hire and expand ignited, perhaps it would restart the engine. Yet in the absence of that, it is left to government to create new policy. We may not want government interference, yet the growing economic divide is dangerous for all levels of business and society. With Washington gripped by inertia, perhaps resolution lay with Federal Reserve policy after all.
So here’s my dream: 535 members of Congress are locked in a room, the kind that JPMorgan locked his colleagues in during the Panic of 1907. They can’t come out until they have a concrete and workable plan to stimulate immediate job growth and circulate credit through all levels of the financial system.
The current economic challenges go beyond financial considerations as the Bloomberg participants revealed. Pressing concerns revolve around the serious social repercussions resulting from long-term unemployment and limited access to capital and credit. The most important question for us as a society to answer is, “What should Congress do to stimulate the economy from a moral perspective?”
Monika Mitchell, CEO of Good-b, is the co-author of the upcoming ground-breaking book, Conversations with Wall Street: The Inside Story of the Financial Armageddon and How to Prevent the Next one.
Category: Sustainable Small-B