On the Contrary

Probably one of the reasons this is not getting much attention is because the financial guys start talking financial speak and we all drift off to la-la land.  But with banks resuming their same old practices of big bonuses based upon risky investments backed by our tax dollars, it is time to focus a little light down in this rat hole.  The good news is this is really a no-brainer.  We have two approaches here.  One is to leave the existing system as is and regulate the hell out of it, and the other is to break up the existing big banks.

Well actually there are three approaches because some of our really brilliant Republicans have proposed that we have no regulations. Republican Congressman Don Manzullo of Illinois, Patrick McHenry of North Carolina and Spencer Bachus of Alabama proposed an amendment that would allow agencies that watches over the financial sector to just die off after five years.  Ideology run amok once again.

I think we can all understand that pure free capitalism in this world runs amok every time.  If it is cheaper to pollute the environment and therefore you gain a competitive edge, you pollute the environment.  If you can rig bids by payoffs, you make payoffs. If it is cheaper to send our airliners to South America for their required yearly checks, you send them to South America. All these examples are true and are on-going.  The history of labor unions is based on corporations enforcing a slave wage because they could.  Need I mention the last financial crisis, or the fact that the rating agencies could make more money by giving the ratings the securities firms demanded?  Where the profit motive is involved, there is no morality and governments must regulate.  Money corrupts absolutely.

As I like to say the devil is in the details, so what kind of regulations.  “Aye, there’s the rub” as Hamlet would say.  What regulations would protect the public and yet not overly limit innovators to innovate?  The other problem with this discussion is that as Congress creates arcane rules, there is major room for mischief here.  Should we be controlling bank executive’s salaries?  Should we have a government regulator nix a deal if it is too risky in his eyes?  If we did that would anyone have funded Apple?

But I told you this was simple and it really is.  First we need clear simple regulations to address the obvious.  But the real solution, believe it or not, comes from Paul Voicker and Alan Greenspan.  NO COMPANY CAN BE TOO BIG TO FAIL.  In the words of the New York Times Article that interviewed him, “He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations.   Mr. Volcker’s proposal would roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities. Mr. Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street’s wild ways.”

“The banks are there to serve the public,” Mr. Volcker said, “and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties” and ultimately fails.”

So we have a simple solution.  Insulate banks and the backbone or our financial system from the security market, and then let the security markets do what they do, and if they fail, boohoo.  One has to wonder why the Obama Administration is ignoring this sage advice and sticking with Timmy-boy and Larry-boy, both creatures of the status quo in the markets?  Or said more graphically. suckled on the fat tit of Wall Street.  These guys have never been you or me.  Remember who Paul Voicker was:  He was the one who raised interest rates back in the eighties and save us from inflation.  He knows what it is like to stand tough with an unpopular, but effective approach.  Oh could our President learn from this man.

By the way, the debate goes on, and if you are interested you can follow economist Paul Simon on the Baseline Scenario as this debate rages.  Trust me, it affects all of us.  Some think the banks are already headed down the road to even a bigger meltdown as we again incentivize risky behavior backed by the U.S. Treasury.  It is amazing to me that we keep turning to Wall Street experts, those morons who did not see this coming or didn’t care.

This weekend’s round of Sunday talk shows was like a never ending recycling of the same old issues.  There is the health care muddle, the Afghanistan debate, the Iran nuclear program, cap and trade being watered down, and least I forget, Glenn Beck getting the key to some city in Washington that I never want to go to.  Banking reform is going nowhere with all the usual suspects.

On the President’s rethinking the Afghanistan war and a troop increase, there was Senator Kyle for Arizona saying what hawkish Republicans have been saying since time began.  We leave and the enemy will see this as a great weakness and they would fill the vacuum.  It will be our downfall.  It must really be comforting to have such a simple world view of every conflict where wagging our…..well you get the point.  What I find simply fascinating is there is no consideration of the cultural or historical record of this country or trying to understand this conflict in terms of what can really be accomplished with more blood and money.

On “60 Minutes”, there was a nice piece about General McChrystal and how dedicated he was to changing the way the war was fought.  He definitely is an admirable man, but that doesn’t make his approach any more appealing.  He is a fine general but this war is not about fighting, it is about minds and we still think like Western white men instead of Afghans (Note: after working on many projects in Afghanistan, Afghans are the people, Afghani is the currency).

I am sure his approach is the only way forward for “winning” the war, if we had 20 years and unlimited funds.  Or would that be 50 years?  Remember we have been there eight and things have gone from bad to worse. The real issue is can we afford it and is it really that high on our national priorities?  If we spent that money here at home making us a stronger economy, would that greatly increase the security of the average American?  I think it is time to quit being terrified of Al-Qaeda.  If the Afghans won’t fight the Taliban, let them live under them for a while and see how they like it.  Maybe it is a problem they have to work out for themselves.

Then there was the arrest of Roman Polanski in Switzerland for having sex with a minor fourteen years ago.  Note that the child, now an adult, wants the charges dropped, but since Polanski was convicted before he ran, apparently California authorities just can’t let it go.  Why do I say that?  This is a horrible crime.  Maybe, but California is broke.  They have a population in prison that is breaking the bank, and they release roughly 120,000 inmates a year.  Many of these are truly dangerous sex offenders that we now no longer have the resources to track and monitor.  So we spend our precious dollars to see that the letter of the law is followed, while we drain the resources from those who could prevent truly heinous crimes.  Sooner or later we need people in government who can prioritize societies needs, not pursue some personal quest at the expense of everyone else’s safety.

The level of stupidity and inaction is reaching intolerable levels, while those in Washington continue to have debates about issues that most of us moved beyond years ago.  Of course banks and Wall Street need to be regulated and the tougher, the better.  If it is too tough, adjust it later.  The evidence for global warming is not just abundant, it is accelerating at an exponential rate (the evidence and the global warming), and yet Washington does nothing except wrangle about protecting vested interests as though disaster is not on the horizon.  Our addiction to oil is being facilitated by low gas prices and yet we know the other shoe is going to drop.  If you don’t buy the global warming thing (you are moron), then look at the transfer of our wealth to the Middle East.  The answer is clean, green energy both for our addiction and for our economy, and yet we do nothing.  Then there is health care.  Oh why bother.  The answer is obvious.

What we seem to be really good at today is denial.  We now have a whole party whose total platform is a denial that that platform has bankrupted us.  If we have health care today that we think is fine, there is no pressure for change because we can’t seem to grasp that health care costs are out of control and today’s satisfaction is tomorrow’s sticker price shock.  Wall Street seems to be coming back so why fix anything?  I don’t see no stinking global warming, and cap and trade will hurt some of my biggest contributors.  Did it ever occur to anyone that we have become a country that can’t?