Speaking to members of the Association for Corporate Growth at a Tuesday morning meeting at the Union Club, Mr. Meyer called members of Congress “idiots” for making bank a “four-letter word” and said the blame for the current crisis should be shared.
The makings for the current recession began in 2007, he said, when subprime mortgages became a big issue. The tendency of some banks — including National City Corp., now part of PNC Financial Group Inc. of Pittsburgh — to originate such loans and sell them brought the banks down when the market for those loans buckled and they had to keep them on their books.
“When that market collapsed, there was nothing keeping the economy going,” Mr. Meyer said. “When the capital markets of the United States don’t operate, we’re in trouble.”
That situation led to the dismantling of the “wealth effect,” a three-legged stool supported by a person’s job, home and investment portfolio. When those three legs began crumbling, consumers lost confidence. Americans finally have heeded the call to save money, Mr. Meyer said, but at the economy’s further detriment.
“What we should have said is, ‘We want you to save, but not right now,’” Mr. Meyer said. “We’ve got some real work to do to unwind the position that we’re in.”
He said the key to getting out of the current economic predicament is the return of consumer confidence.
'The term bailout really does piss me off'
Mr. Meyer said he thinks government has done a lot of things right, but he’s still worried that unemployment figures could rise into the double digits. Unemployment is currently at 8.1% nationally and 8.8% in Ohio.
The government was correct in choosing to prop up banks with capital infusions, Mr. Meyer said, but he bristled at the term “bailout,” saying the $2.5 billion Key collected in federal money will cost the bank 9% with taxes and amortization.
“The term bailout really does piss me off,” he said. “They’re charging 5% after taxes. That’s not a bailout, that’s an investment.”
Those cost increases mean the cost of capital has increased “significantly,” Mr. Meyer said.
The federal government is being “patently un-American and unfair” in changing the rules of the bailout after forcing some banks to sign on, he said. The process is “very, very negative for the banking industry,” Mr. Meyer said, because it makes it more difficult to keep talent when other companies are not limited in how much they can pay employees or by other government rules.
“It’s going to hurt our franchise,” he said.
Mr. Meyer also scoffed at the idea of the federal stress test for banks that Key and others are in the midst of.
“I think the stress test is the last five months, and is continuing,” he said.
U.S. isn't on 'verge of recovery'
Responding to a question about the future of Detroit and the auto industry, Mr. Meyer said he thinks the automakers can survive only by entering bankruptcy protection and reorganizing. He commented also on bonuses paid to AIG executives, calling them “unconscionable,” and said he thought mark-to-market pricing was useful when the markets were active, but that that’s no longer the case.
“When the markets aren’t functioning, the idea of marking it to a dysfunctional market is crazy,” he said. “If there is no market, what are you marking it to?”
Mr. Meyer said, too, that he expects a lot of consolidation in the banking industry in the coming years because the United States has “too many banks” with 7,000. Other countries have fewer than 30.
“Something’s not right here,” he said.
Mr. Meyer said he does not think the country is “on the verge of recovery.” The turnaround will likely not come until the start of 2010, he said. But once it does, lower inventory levels will be a good thing because they could precipitate a faster recovery than had been imagined.
However, Mr. Meyer said he does not think consumer spending will catch up nearly as quickly. People will continue to operate out of fear, he said, and build savings cushions for their families.
He predicted that 2009 would be a tougher year than 2008 and expects a negative gross domestic product again this quarter.
Still, Mr. Meyer said it could be worse for Northeast Ohio.
“I think we have a very stable economy right here in Greater Cleveland, much more than in other parts of the country,” he said. “I think the rate of decline is very close to reversing itself.”