{"id":38440,"date":"2013-08-10T10:37:28","date_gmt":"2013-08-10T16:37:28","guid":{"rendered":"http:\/\/hill-kleerup.org\/blog\/2013\/08\/10\/if-banks-are-too-big-to-fail.html"},"modified":"2013-08-10T10:37:28","modified_gmt":"2013-08-10T16:37:28","slug":"if-banks-are-too-big-to-fail","status":"publish","type":"post","link":"https:\/\/hill-kleerup.org\/blog\/2013\/08\/10\/if-banks-are-too-big-to-fail.html","title":{"rendered":"If banks are too big to fail"},"content":{"rendered":"
The problem is that banks as presently constituted<\/i> serve two distinct, and conflicting purposes:<\/p>\n

1. They serve as safe storage and utilization for liquid assets — checking and savings deposits (personal and business), which are traditionally leveraged for relatively low-risk loan activity for homes, cars, business expansion, etc. \u00a0That's called retail banking.<\/b><\/p>\n

2. They serve as major investment brokers, where massive assets (individual or group) are leveraged for larger, higher-risk gains. That's called investment banking.<\/b><\/p>\n

The problem comes where the assets of #1 — which are a critical to the citizenry as \u00a0whole — are used as the foundation for #2 — which are high-profit, and high-risk, activities.<\/p>\n

There used to be a pretty big firewall between #1 and #2, 1933's Glass-Steagall Act, which institutionally separated companies doing #1 from also doing #2. \u00a0That lasted until the Go-Go 90s when the banking industry finally convinced Washington that such separation of functions (and risks) was totally unnecessary because profit was growing like a giant bubble that would never burst. \u00a0(And, yes, both parties, including a Democratic president, were part of that bubbly decision.)<\/p>\n

And, of course, the #2 bubble burst, and suddenly the foundation of most people's assets — #1 — \u00a0was at risk. \u00a0Hilarity and massive bail-outs ensued.<\/p>\n

Drawing that bright line between traditional retail banking and investor banking remains a critical, and still unaccomplished, need for the country. \u00a0Retail\u00a0banking could<\/i> be nationalized or treated as a public utility, but it can also be run effectively and safely as (as in the past) as highly regulated private businesses if<\/i> those assets aren't available for casino games by rich investors (individual or institutional).<\/p>\n

I wouldn't want to see the investment banking side of the house run as a public utility, because it should<\/i> be high risk, and high reward, because that in turn can have great value in expanding the economy and growing overall wealth. \u00a0But that risk needs to be real<\/i> and borne by the individuals and institutions directly involved, not socialized out to the public ("If I win, I get the profit; if I lose, the government bails me out"). \u00a0Investment banks need to be small enough — or isolated enough — to fail, and what institutional money can be put into them needs to be controlled (personal investors? sure, with disclosures of risks. \u00a0pension funds? no.).<\/p>\n

So, no, I don't want to see banks as a public utility — but if it was a choice between that and letting high-rollers treat my savings account as chips on their table, safe in the assumption that any losses will be covered by the taxpayers … well, that utility options suddenly becomes a lot more attractive.<\/p>\n

Reshared post from +Mary McD<\/a><\/strong><\/p>\n

Touche'<\/p><\/blockquote>\n<\/div>\n

<\/div>\n

<\/p>\n


This post has been reshared 1 times on Google+<\/a>
<\/span> View this post on Google+<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The problem is that banks as presently constituted serve two distinct, and conflicting purposes: 1. They serve as safe storage and utilization for liquid assets — checking and savings deposits (personal and business), which are traditionally leveraged for relatively low-risk loan activity for homes, cars, business expansion, etc. \u00a0That's called retail banking. 2. They serve … Continue reading “If banks are too big to fail”<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":"","_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[106],"tags":[124,164],"class_list":["post-38440","post","type-post","status-publish","format-standard","hentry","category-plusposts","tag-124","tag-164"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":13458,"url":"https:\/\/hill-kleerup.org\/blog\/2008\/12\/08\/the_schadenfreudiest_vict.html","url_meta":{"origin":38440,"position":0},"title":"The Schadenfreudiest victims of the financial collapse","author":"***Dave","date":"Mon 8-Dec-08 3:21pm","format":false,"excerpt":"What happened to all those high-flying investment bankers once their companies, jobs, and stock portfolios went south? A truly touching tale ... Only months ago, ordering that $1,950 bottle...","rel":"","context":"In "Big Business"","block_context":{"text":"Big Business","link":"https:\/\/hill-kleerup.org\/blog\/category\/big-business"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":8983,"url":"https:\/\/hill-kleerup.org\/blog\/2006\/03\/11\/how_you_gonna_k.html","url_meta":{"origin":38440,"position":1},"title":"How you gonna keep ’em down on the cube farm?","author":"***Dave","date":"Sat 11-Mar-06 9:45am","format":false,"excerpt":"The history of the cubicle. Economics was the one thing Propst had failed to take into account. But it was also what triggered the cubicle's runaway success. 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