If you took a snapshot of the Charlotte banking community in 2007, left the Queen City, then returned today, you would find a much different place. Rick Rothacker, banking reporter for The Charlotte Observer, devoted an entire book to the subject of the financial crisis’s impact on North Carolina’s largest city. Rothacker discussed Banktown: The Rise and Struggles of Charlotte’s Big Banks with Mitch Kokai for Carolina Journal Radio. (Click here to find a station near you or to learn about the weekly CJ Radio podcast.)

Kokai: The financial crisis — we all have felt it in one way or another. I imagine Charlotte in particular felt quite a bit of a shock from this financial crisis. How did it affect Charlotte?

Rothacker: Yeah, sort of in a tangible and intangible way. First, since 2008, we’ve lost about 3,000 finance jobs, about $1 billion in wages that those workers made, and then we sort of got our pride hurt a little bit that we used to be the home to two of the biggest banks. Now we’re home to one of the biggest banks. We’re still the second-biggest banking town in America, thanks to Bank of America, but Wachovia — such a stalwart North Carolina bank — is now part of Wells Fargo and based in San Francisco.

Kokai: Now it’s not just a case of this economic slump taking out some jobs. There are some interesting stories about how things played out in Charlotte. What are some of the things that you found that were most interesting?

Rothacker: Two years ago is the peak of the financial crisis. First, Wachovia starts getting into trouble, and really, over one weekend essentially, the government has to step in and essentially auctions off the nation’s fourth-biggest bank. At one point, they even — [Chairman] Sheila Bair at the FDIC even thought about actually just closing the bank and failing it, which would have been even worse of a situation for shareholders, and potentially employees, than what we experienced.

Kokai: You mentioned Wachovia. Also, Bank of America had some stories as well.

Rothacker: Yeah, and then Charlotte kind of comes up for air, hopefully things are maybe going to stabilize, and then suddenly we find out that Bank of America, after they bought their Merrill Lynch deal, realized that they had gotten a lot of bad assets when they bought Merrill Lynch. The losses were a lot worse than they expected, and they actually needed more government aid, and [we] sort of have a whole year’s worth of wrangling going on with the government and the public and investigations and congressional hearings, and [they] ended up changing their CEO.

Kokai: Now, I imagine that some folks are going to say, “Well, did the government really have to do anything, or even if the government did have to do something, did they do the right thing?” What, from your investigation, have you found?

Rothacker: Well, that’s still a big lingering question out there, and [former Treasury Secretary Henry] Paulson and [Federal Reserve Chairman Ben] Bernanke — they’ve all been kind of hauled up in front of Congress and essentially have said, “If we hadn’t done what we did, things would have been a lot worse.” There would have been more foreclosures. You think about Bank of America, they have 300,000 employees. If all those folks were unemployed, essentially, that wouldn’t have been a good scenario. But you also wonder, is that the role of government to step in and nearly nationalize companies and to potentially reward people who made bad business decisions? And so I think that’s something we’ll be debating here for a long time.

Kokai: Obviously, in putting together a book, you want to have some interesting stories, and certainly there are some interesting stories to choose from. What’s one of the most interesting things that you found in putting all of this together?

Rothacker: Yeah, I think that’s one thing people will enjoy — that it’s not just sort of a textbook on banking. It’s really sketches about some of the CEOs and really a narrative that takes you through a lot of the drama. Probably something some people will find funny is when, during the Bank of America wrangling, when they’re trying to figure out what to do, when Bank of America essentially shows up and says, “We’re thinking of not buying Merrill Lynch” and they’re like, “Hey, wait a second, we thought you guys were going to do that, and you really can’t back out of this right now.”

When you go through some of the notes that were eventually released, Henry Paulson, in his notes, is kind of mad that Bank of America is forcing their hand here, and says, “Bank of America is the turd in the punch bowl” that is sort of foiling their plans to have a program to try to rescue the banking system. So that’s probably one of the funnier moments.

And then, of course, there’s just all this drama that goes on where literally at 6 a.m., they’re figuring out who’s going to buy Wachovia and then, four days later, Wells Fargo comes back to the table and actually buys them instead of CitiGroup. There’s a moment where the CEO, or the chairman of Wells Fargo, calls Kevin Warsh at the Federal Reserve and says, “Hey, guess what? We’re going to come back with our own bid.” And Kevin Warsh goes down the hall to Bernanke and says, “You’re not going to believe this.” And so then [another group of] long nights come up of trying to figure out what to do.

Kokai: I imagine that before this financial crisis struck, that a lot of these top banking executives, especially the CEOs, considered themselves pretty top dogs. They were the big guys, and all of a sudden, these government folks are coming in and saying, “Hey, you’ve got to do this, you’ve got to do that.” That had to be something unusual for the people at Bank of America and Wachovia.

Rothacker: Well, particularly ironic is [that] one reason these banks got so big is because they broke down regulations and they created interstate banking and got their deals approved and grew across the country. And then to essentially have the Treasury Secretary tell [then CEO] Ken Lewis at Bank of America, “We actually may push you out of your job if you don’t go ahead and do this.” Some of his deposition testimony is that he was just sort of so shocked they would say something that strong that he went ahead and went along with it, realizing they must really think this is serious.

Of course, some would say maybe they should have fought back some more, and there are some instances where, at Morgan Stanley, the CEO there, John Mack, who is a North Carolina guy, actually, he sort of fought back and said, “I’m not going to do what you’re telling me to do. I’m working on a deal. Leave me alone.” And so, that’s one of these things that will be debated, too, is whether they should have pushed back more against the government.

Kokai: As a banking reporter, you kind of have to say what happens, but as the story played out, were there any things that either, as a reporter or just as a citizen and a banking customer, made you say, “Wait a minute. Why is this happening this way?”

Rothacker: Well, I think early in 2008, we started writing about some of the mortgage loans that Wachovia was making. Basically, we were hearing from front-line loan officers saying, “These loans don’t make any sense. There are special incentives to make these kind of adjustable-rate mortgages, where you may not even have to pay the principal toward the loan. That just doesn’t really make any sense to me.” And so I think some of those things made us really start wondering about what was going on, especially at Wachovia, which had kind of burnished its reputation as a customer-focused bank. That was something that made you kind of wonder.

And then it was kind of strange how they went from deal to deal, that the way to save the banking system was to do a merger, and Wachovia ended up being kind of left out of being rescued the way some of these other banks did, and that frustrates people in Charlotte and Winston-Salem and elsewhere, that maybe this could still be a North Carolina bank.

Kokai: Do you think we’re in a more steady, sober state now? Or, is there a likelihood that in a few years we’re going to see Banktown II: The Sequel?

Rothacker: Hopefully not. I think things have stabilized some. Brian Moynihan, the new CEO of Bank of America, has kind of essentially said, “Smaller is better. Back to basics.” So I think we’re going to see more of that here now, and really for both banks, when you’re as big as they are, they’re very dependent on the U.S. economy. They’re going to grow the way the economy grows, or not grows. And so I think we’re through maybe the crisis stage, but now we’re really into the economic stage, and banks need that to grow as well.