Monday, April 19, 2010

Bailing Out the Gambling Financiers

Why shouldn't banks be limited to a certain size that would not pose a threat to the entire economy? Why shouldn't they be restricted to specific activities that support personal savings and the financial needs of real businesses? Why shouldn't banks be forbidden to gamble with depositors’ cash, also known as other peoples' money?

It doesn't happen because the government is addicted to the tax revenues from the financial services and doesn't want the banks to go overseas. Let them go overseas: they won't find another country with the cash to bail them out nor the political vulnerability to their lobbyists and cash donations.

The subprime mortgage derivatives generated trillions of investment dollars by bank professionals who failed to research the package offered, failed to assess the viability of the sponsors, and ignored the underfunded reserves. Investment banks are a lot closer to spreadbetting indexes than your traditional gambling bookmaker as they simply let everyone else take the risk secure in the knowledge that the government will bail them out with taxpayer money. At least we should separate retail banking from the pure gambling that is often called investment banking. Another alternative would be to nationalize the banks. If the taxpayer assumes the ultimate risk, he should have ownership.

If Congress actually passes a bill forbidding bailouts but does not break up the enormous banks to a reasonable size, the next financial crisis will again be called a threat to the entire economy and the bailouts repeated. Never before has the intertwined relationship between big business and big government been so obvious to so many Americans. They are demanding change and they will get something that looks like change - but it won’t be adequate to contain the continuing crisis.

1 comment:

an average patriot said...

Jerome you are right about breaking up those too big to fail. You know there was a time here when monopolies were broken up as they were counter consumer. Railroads come to mind first!

Anyway our last President the life long failure everything was consolidated making many to big period. Our economic infrastructure our manufacturing base was given away and sent overseas.

Meanwhile when I bought my first house you needed 20% down to but one but under Bush through Greenspan everyone was told they could have the American dream and went for it. You see the resultant nightmare.

It is going to be hard but we have to get back to economics of size. Everyone can not have the American dream turned nightmare, Huge conglomerates must be broken up once again and we must return to the past and remember what worked for us in the past to proceed successfully into the future.


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