Regulate Me Before I Betray You Again!

January 15, 2010
By John

Banking is a great business.  Nobody believes me when I tell them that.  But it is a noble enterprise.  You get to hold your neighbor’s hard-earned savings in exchange for a small amount of interest, you can lend those savings to worthy borrowers and generate a reasonable rate of interest in return, and you get to earn an attractive living as a highly respected professional for doing the work.

Being a good banker makes you a big cheese at home, too.  You get to build houses, grow businesses, and become a pillar in your community.  You get a cool office in the big marble building with the Corinthian columns on the town square.  And occasionally you can pretend you’re George Bailey at the July 4th parade.

And all you have to do is exercise reasonable judgment.   You need to remember your depositors are not investors in a hedge fund.  You need to take their low risk, low cost money and put it into loans appropriate to a depositor’s reasonable expectations.  And what do bank depositors want when you take their money?  They want to be able to get their money out of your bank whenever they want.  That’s it.  If you can’t handle that simple fact, get out of the business.

So why do I bring this up?  Because I’m hopping mad again.

On Wednesday, CEO’s from some of America’s largest banks stood before Congress and told us they couldn’t be trusted with depositor money. They told us they need regulators to stop them from taking too much risk.  They told us we should continue to insure their deposits but shouldn’t limit their size to protect ourselves from ‘too big to fail’ debacles.  They tell us we should stress test their banks, whatever that means, as protection against their uncontrollable behavior.


I don’t care about ‘obscene’ bonuses for independent firms, including banks.  I don’t have an interest in whether companies trade in derivatives, CDOs or other instruments, as long as they disclose what they’re doing and I am not forced to share in it.  I don’t want to demagogue Wall Street greed, or ‘punish’ companies because I don’t like their business.  I like profits.  I like BIG profits.  When they are earned without picking my pocket or levering up my country.

But I’m offended that Bankers – anybody remember George Bailey? he would never have done any of this – would betray their depositors’ trust by taking on massive and unwarranted risks (IMF says there will be $4-trillion in financial losses from these shenanigans before we’re done), would take hundreds of billions in taxpayer bailouts and get unlimited access to ‘free’ money through the Fed window, and then have the audacity to tell us they would lose the remarkable ‘talent’ that got us into this mess unless they pay them fortunes in the very year they screwed us all.

And I’m even more outraged that they have the temerity to tell us we need to regulate them even more or they’ll do it again.   Like the alphabet of financial regulators didn’t know what was happening last time?  Like anybody hasn’t figured out that regulations keep innovation and competition out of a market – and that regulated companies make a lot more money than unregulated firms?  Like we haven’t figured out that more bank regulation ends up with Congressmen demanding favors for their friends (remember ‘Friends of Angelo’ at Countrywide)?  Like we haven’t noticed that ‘too big to fail’ is simply too big to tolerate when our paychecks are at risk?  Give me a break.

The Rough Truth is that these bankers want regulation to juice their returns, to shift the blame for the next debacle onto the regulators, and then dump the cost of their mistakes in our laps.  They want to protect their friends in Congress by taking a few phony shots for the team, and continue to play the game.   Their war cry is “Stop me before I betray you again!”  They want our protection while they want to keep getting bigger and bigger, and blame us when it blows again.  They are telling us they cannot help themselves.

So let’s tell them we all made a big mistake and it’s time for a do over.

Let’s break up any bank accepting federal or state deposit insurance into institutions of manageable size.  And bring back Glass-Steagall – it was a mistake to repeal it.  Taxpayer insured banks should not be insurers, investment bankers, stock traders, hedge fund managers, derivative market makers, or much of anything not related to making loans, moving money around efficiently and taking deposits.  They’re different businesses, the skills required to run them are distinct, and there are no economic benefits to consumers or shareholders for combining them.  You cannot create ‘firewalls’ between them in a bank, either – money is fungible.  That’s why it’s so easily laundered.

I’m betting that many Wall Street firms would be thrilled to facilitate the break-up transactions, and am confident they’d get obscene bonuses for doing it.  Sounds good to me.  But regrettably, the other Rough Truth is we won’t have the sense to do this until the next debacle.  Probably later this year or next.

See Related Article:–barons-wall-st-testify-crisis-panel/

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One Response to “ Regulate Me Before I Betray You Again! ”

  1. Grocery Clerk on January 19, 2010 at 4:32 pm

    Re ‘they’re telling us they cannot help themselves’- reminds me of something I read in the papers c. 20 years ago trying to evoke sympathy for child molesters. The crazy thing is the argment was in favor of “understanding” and “compassion” in (reduced) sentencing. I had plenty of understanding- I understood that if they couldn’t stop themselves it was up to the rest of us to do so (ergo compassion in sentencing contraindicated).
    I say that if these guys want us to believe they have no more respect for other people’s money than a pedophile has for the innocence of our most vulnerable,then we thank them for telling us. Now it’s up to us. A do over, breakups, manageable size and Glass-Steagall all sound good to me. I’m just a grocery clerk with a high school diploma, but it sounds like common sense to me.

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