Today’s blog is about banking in the United States, a topic that might hold little interest for readers who live outside the country, but we all know that when our financial system hiccups, there are reverberations around the globe. Today, our guide through the wonderland of high finance is Allan Sloan, a financial columnist who casts his curmudgeon eye on Wall Street and who noted, recently, that since the last economic meltdown, the same problems remain that started the crisis in the first place. Our banks are still too large, for example.
Since the Great Depression, the country has tried several reforms. One of the most effective was the Glass-Steagall Act which Sloan explains separated commercial banking — those that managed customer deposits and loans — from investment banking. Investment banking is a high stakes roulette table where games like mortgage default certificates are bought and sold. Under Glass-Steagall, banks had to play with their own money and not that of their customers. When Bill Clinton signed the Act’s repeal, however, it was a game changer. Banks could now play with depositors’ funds as well. And therein hangs the panic. (“Are We Ready for the Next Meltdown? By Allan Sloan, Fortune, 9/16/13, pgs. 151-153)
To fix the crisis of 2008, two rules have been proposed, neither of them as comprehensives as Glass-Steagall, however. One was the Hoenig Rule which never got traction, probably because it would have solved the problem. (See blog 8/16/12) The second is the Volcker Rule which has been under construction about as long as the great pyramid of Cheops. According to Sloan, the Volker rule has as many holes in it as a boatload of Swiss cheese, nor is it as effective as the Hoenig Rule; yet the financial community continues to “improve” upon it so that the current proposal is several hundred pages. (Ibid, pg. 152). To be honest, the Hoenig Rule wasn’t a quick read either, which leads me to speculate on the evils we’ve heaped upon ourselves since we invented paper. If folks in Congress and the financial world had to chisel their procedures on clay, cuneiform tablets, I bet those procedures would be a lot simpler.
This brings me to my next thought. Maybe we’ve been going about the banking problem with the wrong set of tools. Maybe the banks aren’t too large. In a world economy, size has its virtues. The problem is that financial instruments have become too complex for anyone to understand. What if we banned paper and electronic banking and forced both the Congress and the high financiers to do their business on clay tablets? I’ll bet that would make laws simpler.
Hearing my proposal, Sloan would probably pat me on the head while sporting a benign expression. “Don’t worry,” I can almost hear him say. “Be Happy. Whatever happens, the American taxpayer will pick up the tab.” True. And, as a result, so will folks around the globe.
(Courtesy of thinkprogress.org)