Considering there is a huge scandal still simmering in the legal system currently regarding several large banks manipulating the LIBOR rate … I think bankers should be very afraid indeed. We’ve written about this and provided some solutions to our banker problems HERE; one hint – it involves federal pound me in the ass prison for all the C-suite executives who have engaged in this charade of all people throughout the world – not just Americans. I have already advocated for following Iceland’s lead regarding these bankers HERE; the criminals responsible shouldn’t feel safe on one square mile on this planet.
The only way we’ll actually move forward with criminal prosecution is when politicians get serious about this and thus far – neither party has shown a real interest in confronting these bankers head on like Elliott Ness went after Al Capone. That kind of guts doesn’t exist presently despite the groundswell of anger at the grassroots level by members of all parties regardless of ideology.
Simon Johnson says the tide of popular opinion is turning against the megabanks in the Republican party HERE:
These views notwithstanding, mainstream Republican opinion is starting to shift against the megabanks, as former Treasury secretary Nicholas Brady makes clear in a strong opinion piece published in The Financial Times.
Mr. Brady was Treasury secretary under Presidents Ronald Reagan and George H.W. Bush, and to the best of my knowledge, no one has ever accused him of being any kind of leftist.
Yet Mr. Brady’s thinking in his Financial Times commentary is strikingly similar to the reasoning that motivated the Brown-Kaufman amendment (supported by 30 Democrats and three Republicans) in 2010, which would have put a hard cap on the size and leverage of our largest banks, i.e., how much an individual institution could borrow relative to the size of the economy. (See this analysis by Jeff Connaughton, who was chief of staff to Senator Ted Kaufman; Senator Sherrod Brown, Democrat of Ohio, is still pushing hard on this same approach.)
If a bank is too big to fail – it’s too big to survive. The size of these banks have become a TREMENDOUS liability. As Simon Johnson points out – the 6 largest banks are worth 60% of GDP presently … no matter what people say – they are the definition of moral hazard. Now – thanks to the Dodd-Frank Act should these banks require a taxpayer funded bailout – each of these banks is required to have a living will to assist in the dismantling of these banks. Additionally – it is now federal law that should that bailout occur – investors would take a heavy haircut and that bank would be finished forever.
Prior to the Dodd-Frank Act – no regulations existed and there was no legal consequence for the government coming in to save reckless bankers gambling big on risky bets. So – the upside was huge and the downside was they would get bailed out due to moral hazard. That leaves a CEO to do the math. But the law has changed. Interestingly – Mitt Romney wants to completely repeal the Dodd-Frank Act under the premise that it is bad for small businesses. And if you believe that – then you need to quit life now because you’re destined to be the dim bulb in a dark closet for the rest of your life. It is that sort of gullibility that allows these con men to continue preying on voter stupidity.
And if you think this is always how it has been – you’d be way, way wrong. Thanks to the advent of financial deregulation in 1980 to present under both Republican and Democratic administrations and Congresses …. the banking industry has grown into an unstoppable leviathan feasting off the retirements of retirees and future retirees. As I have written HERE – there are 6 major pieces of legislation that have completely wiped out the Depression era protections put in place after the learnings in the 20′s and 30′s that banking is best when it is boring. Those laws are:
And with the exception of Sarbanes-Oxley passed under George W. Bush after the Enron energy commodities scandal … the Dodd-Frank Act is the only real financial regulation bill that has been passed to start to turn the corner and revert back to some level of sanity in our banking industry. In short – anyone calling for more deregulation of the banks is either a useful idiot or they’re somehow engaged in the shell game personally.
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