How Banks Need to Mollify the Public Sector

I just got off the phone with ProPublica's Dick Tofel; we talked quite a bit about the Goldman Sachs story they put out yesterday, but unfortunately they don't seem inclined to say anything on the record. One thing which is abundantly clear, however, is that right now banks, in the wake of receiving government cash injections, have to be very careful about anything they do which touches the public sector. Goldman isn't used to being a bank, but it's going to have to learn fast.

As Jeff Cane said yesterday, conflict with the likes of California's treasurers "is not something you want when government anger is increasingly being directed at Wall Street". They have a lot of political clout, and they're clearly unhappy at the kind of conversations which Goldman had with its buy-side clients.

My view is that this constitutes bullying tactics on the part of California: it's trying to prevent Goldman from sharing its opinions with its buy-side clients, by kvetching loudly to the press and (presumably) punishing Goldman by no longer using them to underwrite its bond issues. Companies often do much the same thing, when analysts put "sell" ratings on their stocks and bonds, but companies don't have the political wherewithal of states.

And it's not just Goldman which now needs to be much more aware of the possible political repercussions of its actions. Come January, the Democrats will control both the White House and Congress, and they're not likely to be very happy about things like this:

Banks are responding to the troubled economy by jacking up fees on their checking accounts to record amounts.
Last week, Citigroup Inc.'s Citibank started charging some customers a new $10 "overdraft protection transfer fee" to transfer money from a savings account or line of credit to cover a checking-account shortfall. Citibank had already raised foreign-exchange transaction fees on its debit cards and added minimum opening deposit requirements for its checking accounts...
With all these changes, the average costs of checking-account fees, including ATM surcharges, bounced-check fees and monthly service fees have hit record highs, according to a new study by research firm Bankrate Inc.

In other words, beleaguered Americans are bailing out the banks twice: once as taxpayers, and once as customers, forced to pay $10 fees for moving money from one account to another. They're not going to be happy about this, and neither are their representatives. And the banks should be coming up with plans right now for how they're going to mollify them. Otherwise, they could get bitten, hard.