John Kerry Is Last Guy You Want Helping Banks: Caroline Baum

Commentary by Caroline Baum

March 3 (Bloomberg) -- Politicians and the press are having a field day with Wall Street bankers.

And who among us will stand up to defend them?

Populist sentiment is aligned against these titans of finance, who took big risks with other people’s money and made bad investment decisions in search of a fast buck. Now we’re all paying for their short-sightedness.

On Feb. 11, chief executives of eight large financial institutions endured a whipping from Barney Frank’s House Financial Services Committee.

Shortly after came news that the Northern Trust Corp. of Chicago, a profitable bank that received $1.6 billion of government money under the Troubled Asset Relief Program, had sponsored a golf outing for clients, spending millions of dollars -- and raising millions for charity -- to transport guests to Los Angeles and entertain them lavishly.

On Feb. 24, an outraged Senator John Kerry, Democrat of Massachusetts, said he planned to propose legislation that would “end the extravagant spending practices” of banks receiving TARP funds. His “TARP Taxpayer Protection and Corporate Responsibility Act” is intended to clamp down on such frivolous entertainment, which Kerry finds “unacceptable.”

“We must act to insure additional taxpayer funds are not wasted,” he said.

I don’t know about you, but I don’t want government bureaucrats making business decisions -- even if Washington politicians are experts when it comes to wasteful spending.

Government Lifer

Kerry has spent his entire life working for the government, from the U.S. Navy to the State of Massachusetts to the U.S. Senate. He did marry money -- Teresa Heinz Kerry, whose $1 billion net worth put her at No. 1,062 in Forbes list of World Billionaires in 2008 -- so maybe he has acquired some acumen in the area of wealth creation.

Still, as taxpayer-turned-Northern-Trust-shareholder, I want CEO Frederick Waddell calling the shots, not John Kerry or any of his Washington brethren.

The reason Northern Trust or any other profit-maximizing institution decides to sponsor a golf outing or entertain clients in other ways is because those expenditures deliver a solid return on investment for the bank. A company wouldn’t waste the money -- less available for those greedy executives! -- if no ROI were involved.

Social outings foster business relationships. They get the bank’s name out in the public, build customer loyalty, encourage new business and influence decisions when a company needs banking services.

Idiocy Defined

Kerry called Northern Trust’s spending “another idiotic abuse of taxpayer money while our country is on the brink.” One person’s idiocy may be another person’s good investment.

In 2007, Northern Trust signed a five-year agreement to sponsor the annual golf event at the Riviera Country Club in Pacific Palisades, California, one of the oldest stops on the PGA tour. Last year the bank had $640 million in net income while most of its peers were deep in the red.

It’s in our national interest for Northern Trust to invest in its business, turn a profit and add to its capital base so it can keep lending.

What about the symbolism? How does it look for Northern Trust clients to sip champagne at the Ritz Carlton in Marina del Ray or listen to a performance by Earth, Wind & Fire at a private hangar at the Santa Monica Airport when formerly middle-class folks are lining up at food pantries?

I don’t recall much outrage when the R&B band entertained the nation’s governors at the White House a few days later. And President Barack Obama’s guests didn’t exactly dine on mac ‘n cheese.

Capitalism Lite

Businessmen make bad decisions all the time. In a true capitalist system, they would be punished by the market and allowed to fail.

This time around, a lot of businessmen made a lot of equally bad decisions at the same time, shaking the foundation of the financial system. Elected officials and policy makers determined that failure was not an option, once Lehman Brothers had been cut loose.

Instead, the government is pouring money into financial institutions in what appears to be a policy of “No Bank Left Behind,” according to an e-mail from a regular reader.

It is not unreasonable for a major investor in a company to introduce new ideas on how to run a business or demand representation on the board of directors. Nor is it out of line to remove the management and install a new team.

There is no love lost for bankers nowadays. Most taxpayers would probably be happy to see the whole lot of them run out of town and replaced by new, professional management.

I doubt John Kerry is what taxpayers had in mind.

(Caroline Baum, author of “Just What I Said,” is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.