Obama takes his first scalp. Who's next?

Wall Street's CEOs better not take heart in seeing G.M.'s head honcho get the punishment that they so richly deserve. Because their own job security just took another big hit.

Published March 30, 2009 7:29PM (EDT)

There will be no escaping headlines (or cable news sound bites) like this today: "Wagoner out, bank CEOs safe -- huh?!"

CNN Money's Paul R. La Monica writes:

Let's get this straight. If you are a CEO of a bank that's losing gobs of money, the government will bail you out repeatedly and let you keep your job.

But if you're Rick Wagoner, the CEO of General Motors, you are forced to fall on your sword, or piston as the case may be.

Let's look at this a little closer.

  • Merrill Lynch: Oct. 28, 2007: CEO Stanley O'Neal resigns, replaced by John Thain
  • Citigroup: Nov. 4, 2007: CEO Chuck Prince resigns, replaced by Vikram Pandit
  • Bear-Stearns: Jan. 8, 2008, CEO Jimmy Cayne resigns, replaced by Alan Schwartz
  • Fannie Mae and Freddie Mac: Sept. 8, 2008: At the government's request, Herbert Allison replaces Fannie Mae CEO Daniel Mudd and David Moffett replaces Freddie Mac CEO Richard Syron
  • AIG: Sept. 16, 2008: At the government's request, former Allstate CEO Ed Liddy replaces Robert Willumstad as CEO

Throughout this crisis, financial institution CEOs have been falling on their swords, whether at the behest of the government or their own boards of directors. True, Goldman Sachs, Morgan Stanley, J.P. Morgan Chase and Bank of America all currently still employ the CEOs who were in place when the current troubles began. Not coincidentally, Bank of America excluded, those institutions are leading contenders for the coveted position of least likely to be nationalized. Or, to put it another way, if the endgame of the banking crisis is that Goldman Sachs and J.P. Morgan get nationalized or forced into bankruptcy as well as Citigroup and Bank of America, then we just better settle down and learn to love this depression, because it's going to be with us for a long, long time.

There is an eminently justifiable expectation that in return for government help, Wall Street financial institutions should pay a price. The most obvious place to pay that price is for CEOs to place their necks firmly on the guillotine. But let's recall exactly how TARP funds were doled out in the first place. Hank Paulson called the CEOs of the biggest financial institutions to Washington and essentially ordered them all to accept capital infusions -- whether they wanted to or not, whether they needed it or not. The explanation at the time was that the White House wanted to avoid stigmatizing any particular bank -- such censure would, so the theory went, have been the kiss of death for whoever received it. Whatever one thinks of the merits of that approach, I think we can agree that J.P. Morgan's Jamie Dimon or Goldman Sachs' Lloyd Blankfein would have been unlikely to "accept" TARP funds if they had been required to resign as part of the "deal."

Since that point, Citigroup has been a recipient of repeated bailouts, and Bank of America's purchase of Merrill Lynch has gone exceedingly sour. I won't quibble with the argument that, based on their job performance, neither Citigroup's Vikram Pandit nor Bank of America's Ken Lewis deserves continued employment. Ken Lewis bears clear responsibility for helping steer Bank of America to a size so large its potential failure jeopardizes the functioning of the U.S. economy. Pandit has hardly distinguished himself during his tenure (although it's hard to imagine anyone else could have done much differently over the same time period). But isn't the appropriate time for their government-mandated ouster the moment when the government makes a final determination on their fate?

The possibility still exists that the banking stress tests will be orchestrated so as not to declare Citigroup or Bank of America insolvent, and that the Obama administration will continue to try to keep the big banks afloat by dribbling capital toward them with schemes like the Geithner plan to subsidize purchases of toxic assets. That would be consistent with the theory that says Wall Street owns the White House, which is, until proven otherwise, a legitimate interpretation of how events have played out so far. But there's a big weakness in that scenario, which is that if the banks really are insolvent, their ongoing requirements for funds -- even through the subsidy scheme -- will outstrip the White House's pocketbook, and Obama will be forced to ask Congress for more money.

But are Democratic senators like Ohio's Sherrod Brown or Michigan's Carl Levin going to sign off on more bailout money for Wall Street after Monday's events? That seems unthinkable. At the very least, they'll want their own sacrificial lambs in return for the slaughter of Detroit's bluebloods. To argue that the CEOs of any of Wall Street financial institutions could consider themselves "safe" is, I think, unwarranted. If anything, after watching the president request that Rick Wagoner pack up his personal effects and exit the office, the banking CEO crown must lie ever more uneasily on the head. Because by asking Wagoner to step down in return just for a 60-day bailout timeline extension, Obama has boxed himself in. He can't let Lewis and Pandit off the hook, after today. Congress won't let him. Nor will the rest of us.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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