Glass-Steagall reconsidered
Economic Populist points us to consideration of re-instating the Glass-Steagall Act.
Plain vanilla banking at a tidy profit for regular banking functions is still a good idea.
Relevant and even prescient commentary on news, politics and the economy.
Volker: return things to where they were before the banking euphoria and hysteria took hold. We have no need for the “financial innovators” who have done nothing but damage to our economy. As Buffett so wittily put it: “Beware Geeks bearing formulas.”
Sorry forgot the link:
http://baselinescenario.com/2009/12/17/paul-volcker-picks-up-a-bat/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BaselineScenario+%28The+Baseline+Scenario%29
But … but … plain vanilla banking is so 19th cenury. Not innovative at all. And probably any college graduate could run a simple bank. IF ANYONE CAN RUN A BANK, WHERE ARE THE BONUSES GOING TO COME FROM? This communist, socialist, idea must be nipped in the bud.
Codger, I agree! No rational decisions to make banking more controlled and perhaps safer! No! No! No! It must be wide open dealing in paper products of no or dubious value.
Problem is, banks do a lousy job of plain vanilla banking at a profit. The bankers are too used to the adreneline rush of high finance.
If you taxed away the absurd amounts made by “financial innovators” there would be no incentive to “innovate”. You know. a 70% levy on all income over say one million or, maybe to be nice to people who built themsevles a palace and need to pay the mortage, two million. Of course it would be useful to the country to divert the money spent on palaces to better more equitable ends. So let’s tax palaces worth over 2.5 million with a yearly “excess real estate value” tax of, say 25% in addition.
If you want to know what I mean by “palaces” check out the one owned by Candy Spelling in Bel Air. I think she has it on the market for 65 million. She has moved instead into a duplex or triplex or sexplex that cost maybe 35 million. Downsizing, you know.
Oh gee, I made a mistake. She is asking 150 million. A thousand pardons.
http://articles.latimes.com/2009/mar/28/business/fi-candy28
The departing CEO of wells said he would not have gone into traditional banking because it was to dull. Maybe we need dull bankers, banking where you take deposits at 3% make loans at 6% and are on the Golf Course by 3 pm. Note that back then investment banks were partnerships so you put your entire net worth on the line when you got to partnership. Lets cut the proprietary trading (and market making) into partnerships. Banks can be order takers for buying and selling stocks and bonds (just that order takers only). Change the IPO/market model to take the investment bank out of the chain, its just a marketer, the deal is issuer to final purchaser. With modern tech you could do a reverse auction, i.e. starting at the highest bid, go down the list adding the amount at each price point until you reach the number offered. That is the price everyone pays for the offereing.
Not only can any reasonably intelligent college grad run a bank with the Glass Steagall wall, but all the reasonably intelligent college grads who are running banks will not get in way over their heads. The too big to fail problem is different, but there are a lot of smaller banks who could have weathered the last couple of years if Glass Steagall had not been repealed. I also am on record numerous times that high marginal tax rates on extraordinary incomes would not only do a lot to solve the bonus problem, but would also reduce the incentive to gamble with other people’s money.
It would be great if there was a big push across the nation to make this happen. Imagine the level of Wall Street lobbying that would unfold in Washington, D.C.. Money would be flying all over the place.
Margery,
As Buffett so wittily put it: “Beware Geeks bearing formulas.”
This sounds like sound advice but the choice on whether or not to use the Geeks formulus should be the choice of the individual decision makers at whatever institution that wants to consider geek work product. In general more choice makes you richer and less mekes you poorer. The is why I don’t want politicians making taking our choices away from us
Margery,
As Buffett so wittily put it: “Beware Geeks bearing formulas.”
This sounds like sound advice but the choice on whether or not to use the Geeks formulus should be the choice of the individual decision makers at whatever institution that wants to consider geek work product. In general more choice makes you richer and less mekes you poorer. The is why I don’t want politicians taking our choices away from us
Recent articles in the media, like this one in the NY Times: http://www.nytimes.com/2009/12/16/business/16goldman.html?_r=1&scp=2&sq=Goldman%20Sachs&st=cse, portray Goldman Sachs as a true example of the greatness of capitalist ingenuity and the rewards it provides. But no where in those articels is there an in depth discussion of the unfair advantages enjoyed by GS. Some examples left out of that NY Times piece: Blankfein sits in on Treasury and Fed discussions regarding saving the system; programmed trading schemes that give GS, and other big trading houses a quick peek at the orders flowing through the market JIT to make quick trades based on that information; GS employees are described as “goiing into government service” as though GS gains no benefit from their key employees and partners being sprinkled through out the regulatory agencies.
They enjoy an insidious position in the financial sector and the media describes their success as the result on genious and hard work. There is genious at work all right, but it isn’t clearly a genious of a professional kind.
The point being that Geek formulas have proven simply to make tons of money for the Geeks and their followers (later dupes) at the risk of the solvency of institutions. When those go belly up the malaise spread far and wide. Hence it is NOT just up to the institutions as we should have learned by now. Though the Geeks and their profiteers don’t want that lesson learned. Individual decisions can impact lots of innocent people who are hurt. The fact that the rich don’t care is simply a testimony to their evil nature.