After a year of clashing with Washington over new financial reforms, the country’s most powerful bankers have found common ground with regulators in the hard-fought effort to lift the debt ceiling and avoid a default.
Enlarge This Image
Susan Walsh/Associated Press
In December of 2009, President Obama met with chiefs of the financial industry. Lately, they have reached out on the debt ceiling.
Multimedia
Graphic
Charting the American Debt Crisis
Interactive Feature
The Debt Crisis — What Should Congress Do?
Related
Amid New Talks, Some Optimism on Debt Crisis (July 31, 2011)
Nation Calls Capital Mad, and It Agrees (July 31, 2011)
Debt Problem’s Sure Cure: Economic Growth (July 31, 2011)
Essay: Coming Soon: ‘Invasion of the Walking Debt’ (July 31, 2011)
Taking a Closer Look at the Result of a Credit Downgrade (July 31, 2011)
Times Topic: Federal Debt Ceiling
Wall Street is no longer watching from the sidelines as the most polarizing political fight in years plays out on Capitol Hill. In the last few days, top executives have been in close contact with Washington in a last-ditch attempt to prod lawmakers toward a compromise by Tuesday, the administration’s deadline to reach a deal.
On Friday, Jamie Dimon, JPMorgan Chase’s chief executive, raised concerns with Treasury Secretary Timothy F. Geithner about the standoff over the debt ceiling and its potential to disrupt the system through which JP Morgan and other big banks disburse federal payments. Mr. Geithner assured him that the Treasury and Federal Reserve had taken steps to keep the payment system functioning smoothly, according to individuals briefed on the call.
In addition, more than a dozen chief executives from the nation’s biggest financial services firms wrote a joint letter to President Obama and members of Congress on Thursday warning of “very grave” consequences for the economy and the job market if an agreement wasn’t reached.
It’s not just chief executives who are now doing the talking, either.
Bankers have deluged Congressional staff members with research reports outlining the bleak consequences of a default, or even a downgrade of United States government debt by the major rating agencies. And in corporate America’s version of grassroots mobilization, Allstate e-mailed 45,000 employees urging them to call their local members of Congress and demand a deal.
Hedge fund managers, normally among Wall Street’s most secretive tribes, have been stepping out of the shadows, too.
Marc Lasry, a major Democratic fundraiser who manages the $14 billion Avenue Capital hedge fund, said he spoke to half a dozen members of Congress from both parties on Thursday and Friday with blunt warnings that failure to compromise on the debt ceiling risked permanently damaging the nation’s financial standing.
“Over the last couple of weeks, everybody assumed it would get done,” said Mr. Lasry. “It’s only in the last couple of days that I’ve gotten worried it might not.”
Not since 2008 have federal officials and bankers been so clearly aligned in their push for the same policies. Back then, the industry and regulators pressed Congress to pass legislation allowing the federal bank bailout at the height of the financial crisis.
“They both have the same interests at the end of the day,” said Tom Block, a consultant and formerly the global head of government relations at JPMorgan Chase. “They both want the banking system to be safe and sound.”
To be sure, with market turbulence almost certain to follow a default, Wall Streeters also want to safeguard bank profits and their own bonuses. Nevertheless, for much of the spring and early summer, while battle lines were being drawn by Republican and Democratic lawmakers, financial executives mostly stayed out of the fray.
According to lobbyists and executives, banks believed the two sides in Washington would ultimately find a way to make a deal. Plus, there were worries that being too outspoken might spook the financial markets. Most important, with the industry’s image in tatters in the wake of the financial crisis and subsequent bailout, some bankers feared their involvement might actually be detrimental.
“Every time Wall Street raises its head, there are a lot of people ready to chop it off,” said one senior banking industry official.
But as the deadline approached, anxiety began to take hold. A turning point came on July 11, when top officials from some of Wall Street’s most powerful lobbying groups filed into an ornate conference room opposite Mr. Geithner’s office on the third floor of the Treasury Building to make their case about the danger of inaction.
Several of the representatives, like Frank Keating of the American Bankers Association and John Engler of the Business Roundtable, were former governors with deep political connections. Others, including Robert S. Nichols of the Financial Services Forum and Leigh Ann Pusey of the American Insurance Association, are among the most powerful lobbyists in Washington.
“Everyone was on the same page,” said Mr. Nichols. “We all said this had to get done and it was urgent.”
Mr. Geithner told the group that anything they could do to get the debt ceiling lifted would be helpful, according to Mr. Nichols.
Administration officials reached out to the business community this spring, anticipating a bruising political fight. Over a lunch buffet in April in the Manhattan boardroom of Kohlberg Kravis Roberts, Mr. Geithner warned Wall Street executives of the dire consequences of failing to raise the debt ceiling.
Multimedia
Graphic
Charting the American Debt Crisis
Interactive Feature
The Debt Crisis — What Should Congress Do?
Related
Amid New Talks, Some Optimism on Debt Crisis (July 31, 2011)
Nation Calls Capital Mad, and It Agrees (July 31, 2011)
Debt Problem’s Sure Cure: Economic Growth (July 31, 2011)
Essay: Coming Soon: ‘Invasion of the Walking Debt’ (July 31, 2011)
Taking a Closer Look at the Result of a Credit Downgrade (July 31, 2011)
Times Topic: Federal Debt Ceiling
Among the attendees were Henry Kravis, the private equity titan, Gary Cohn of Goldman Sachs, Robert Wolf of UBS, and the hedge fund managers John Paulson and Paul Singer.
But Wall Street’s ensuing steps were mostly below the radar — a very different tack than the much more dramatic efforts of recent days, and a sharp contrast to the tenacious and more public fight bankers have waged with the administration as it implements the financial regulatory reforms signed into law last summer.
Mr. Dimon’s call to Mr. Geithner Friday was prompted by a growing concern in the last week that even a brief disruption in federal payments might force JPMorgan and other big banks to lay out billions of dollars to food-stamp recipients, military service members, and other beneficiaries of the government, unnerving both banks officials and customers.
In a statement, a Treasury spokeswoman, Colleen Murray, said “in the event Congress does not act to raise the debt ceiling, Treasury had assured the Federal Reserve that we will only authorize them to make government payments when there are sufficient funds to cover such payments.”
A day before Mr. Dimon’s phone call to Mr. Geithner, Allstate urged its employees to “add your voice as an individual by encouraging your elected officials to redouble their efforts immediately to find a reasonable compromise.”
Earlier in the week, the U.S. Chamber of Commerce, which donated heavily to Republican candidates last year, threw its weight behind a proposal to raise the debt ceiling backed by the House Speaker, John A. Boehner.
Mr. Boehner retooled his proposal to win House passage, but it was rejected by the Senate Friday night. Still, the Financial Services Roundtable, another major trade association, prepared a lobbying blitz this weekend to secure passage of whatever budget blueprint finally emerges.
But some lobbyists say it’s the market, not political maneuvering, that will ultimately force Congress’s hand.
“At the end of the day, people won’t do this because they want to do this,” said Jimmy Ryan, a lobbyist whose clients include the Securities Industry and Financial Markets Association and Citigroup. “They will do this because they are scared of what will happen if they don’t do it.”
No comments:
Post a Comment