Financial Industry Woes Drag Market Down

Banks were back in the spotlight again Monday, and not for pleasant reasons, as they helped to drive the equity markets downward. Citigroup led the downward charge, losing about 17 percent of its value. Investors seemed worried about the banking giant’s continued and seemingly unquenchable thirst for capital, as well as uncertainty about who’s going to be running the place once an opaque management reshuffling is complete.All together, the Down Jones Industrial Average was down 125.21 points, or about 1.46 percent. The S&P 500 and the Nasdaq lost more: 2.26 percent and 2.09 percent respectively. Attention also focused on banks because of President Bush’s request to release the remaining $350 billion of last fall’s $700 billion TARP bailout approved by Congress. The outgoing Bush administration has thus agreed to pass that football to the incoming Obama administration, and it’s fairly clear that banks won’t be first in line at the trough this time around. President-elect Obama has said that his first priority with the money is to slow down housing foreclosure rates–something the banking industry has been distinctly unenthusiastic about, especially if it involves mortgage cramdowns. Moreover, the Federal Deposit Insurance Corp. wants banks that have already gotten bailout money to report on just what it is they’ve done with their windfalls, because lending it hasn’t really been in the cards. That this is happening now–after the distribution of $300-plus billion, and not last fall before the distribution–may be a little odd, but perhaps the FDIC figures better late than never. Or maybe the agency is trying to get on the right side of the incoming administration, which says it wants to “impose tough and transparent conditions on firms receiving taxpayer assistance,” to use the phrasing of Larry Summers, incoming head of the National Economic Council. In any case, the FDIC sent a letter to various banks, which said in part: “The monitoring processes should help to determine how participation in these federal programs has assisted institutions in supporting prudent lending and/or supporting efforts to work with existing borrowers to avoid unnecessary foreclosures.” The federal government is also likely to start keeping a closer eye on executive compensation, and not only for banks. “In the wake of all the iterations of the federal bailout, there will be a lot more new rules about executive compensation, at least for those companies participating in the bailout,” a New York-area real estate industry consultant told CPN. “But eventually the influence of these rules will be felt by everyone, including the real estate industry.”