As the subprime crisis continues to ravage commercial and investment banks, the media, fueled by a seemingly limitless supply of pundits, politicians, columnists and other highly opinionated types, continues to offer elixirs to save and protect our ailing financial system. More often that not, a hefty dose of new regulation is prescribed; the folks over at Portfolio, for instance, recently posited that demanding transparency from everyone from hedge funds to private equity firms would somehow do the trick. Others have suggested firms such as Bear Stearns Cos. should be allowed to die to serve as a chilling example to similarly reckless, greedy and stricken financial firms.
But now comes another solution to our current crisis, courtesy of The Wall Street Journal's M&A columnist, Dennis Berman. One of his prescriptions is "to give private-equity firms more leeway in exerting control over a bank investment. Today they're largely limited to 9.9% stakes."
Private equity firms? The same guys who have been vilified for, well, take your pick: not paying enough taxes; being too secretive; collecting fat fees, overloading beloved corporate icons with debt and firing workers; and generally exhibiting excessive greed, as illustrated by lavish birthday parties and a taste for stone crabs? Private equity is often portrayed as nothing short of a criminal enterprise -- who can forget BusinessWeek's "Gluttons at the Gate" cover? Even Berman, in his Deal Journal blog, has suggested some elements of a lawsuit against the private equity industry and its "illegal" buyouts "ring true."
But in the aftermath of recent PE deals to bail out National City Corp. and Washington Mutual Inc., it seems all is forgiven, at least for now, and Berman wants to give the buyout crowd more sway over bank managements they invest in. His piece, in turn, was lauded by no less a populist haven than the Columbia Journalism Review's Audit Web site for offering possible solutions to the banking crisis.
Look, we're totally agnostic about whether PE firms should be granted more control or not. What we find fascinating, however, is how the media seems so willing to change its tune about private equity so quickly. Who cares that we've previously called them gluttons? They can save the banks! And without getting taxpayers, or those sinister foreign sovereign wealth funds, involved.
Of course, this goodwill toward PE may not last very long. As an editorial in Nat City's hometown paper, The Plain Dealer in Cleveland warns, "As the new investors scout for ways to squeeze savings out of the bank, employment could drop. National City, known for its corporate generosity, probably will face pressure to scale back its community benevolence." When that happens -- or when PE gains become evident -- the media isn't likely to be singing their praises.
While we're on the subject of media remedies for complex problems, get a load of this: A recent piece on The Consumerist blog, part of the Gawker media empire, claims to have uncovered the real culprit behind the subprime debacle. Ready? It's the repeal of the Glass-Steagall Act back in 1999! The post explains that once the separation between commercial and investment banks went away, banks, "on the one side ... could sell mortgages to homeowners, and then invent fancy investment structures that they sold on Wall Street. Because they were 'covered' on both ends, banks felt free to sell increasingly dicey mortgages, just so long as another sucker was picking up the garbage." The villains of the piece by the site's editor, Ben Popken: President Clinton, a Republican Congress and Robert Rubin.
Popken screws up and omits so many facts it's impossible to list them. A few he ignores: Commercial banks were making crappy loans long before Glass-Steagall fell, and they were packaging loans into securities in the '80s. Many of the firms that made bad mortgages in our most recent crisis -- Washington Mutual, Countrywide Financial Corp., to name two -- are neither commercial nor investment banks. No matter. The Consumerist posting attracted more than 18,000 views, and many of its 86 commentators were thrilled to learn where to direct their anger. "Informative article." wrote one. "Helped me get some perspective on the subprime mortgage business that's going down. Someone always makes out like a bandit when the regular person suffers." Wait until Popken discovers LBOs.
Yvette Kantrow is executive editor of The Deal.
Follow Yvette Kantrow on Twitter: www.twitter.com/MediaManeuvers