President Obama's announcement that banks, particularly the big banks, must be re-regulated, in ways that keep them from risky trading ventures, keep them from conflicts of interest, and keep them of a size that they cannot be "To Big To Fail".
His approach has strong support from brilliant economists such as former Federal Reserve Chairman, Paul Volcker. I was pleased to meet and interview Paul Volcker years ago. He continues to demonstrate insights into the banking system. We are lucky that this "Economic Giant" is advising our President.
Simply put, the "Mega Bank" system, was made possible by years of money lobbying by the "big boys" to deregulate and allow banks to become insurance agents, brokers, traders, investment firms, and almost anything they wanted to do. Banks had traditionally been forced to have a fiduciary responsibility to their communities, to keep the economic flow going. Their goal, along with the Federal Reserve, was to maintain a strong and viable economy. They transformed themselves into cheap minded opportunists, with little loyaty to their communities, their employees, or to their nation. This "Mega Bank" system is what got us into the current recession that the world is in. The "Mega Bank" system attempted to kill off "community banks" and did manage to wound the "locally owned" banking system. As a result, the "big boys" have become more distant and further removed in philosophy of local lending responsibility and often out of touch with true credit needs of "Main Street". The Mega Banks have betrayed, often destroyed traditional community banking that establishes personal relationships that carry on for years, often lifetimes, and grows local economy systems. The "Mega Bank" system has concentrated financial power in such ways that they can dictate to governments. Thus the "To Big To Fail" approach simply means, they become so big, that they control governments and economies.
That of course is what brought us to the "melt down" and current global recession. Our government, as led by George W. Bush felt obligated, to bail out the Wall Street country club of bankers and investment managers. Then, they in turn made profits by the billions at taxpayer, and the national economy's expense.
Obama, and Volcker (and many others) have put thought to this. Politically, no one has had the courage to attack the big banking system, and such an approach has many risks. But there is a growing wave of justified anger at big banks, from throughout America, as we have reported repeatedly.
For the past 20 years, I have lectured in venues throughout the USA, Asia, Europe, and Latin America about the dangers of deregulation, and the need for reregulation and restructuring of the banking system. Paul Volcker and I agree on this, and have for a long time. It is good to see our nation open up the debate, and move in the right direction, before we experience more economic disaster.
This is what the former Federal Reserve chairman said to the House of Representatives banking and financial services committee in September:
“As a general matter, I would exclude from commercial banking institutions, which are potential beneficiaries of official (i.e., taxpayer) financial support, certain risky activities entirely suitable for our capital markets.
Ownership or sponsorship of hedge funds and private equity funds should be among those prohibited activities. So should in my view a heavy volume of propriety interest or conflicts of interest.
But the most interesting proposition is the concept that if a giant bank conglomerate is not serving America, it should be broken up and sold off in pieces and put in the hands of business leaders who will create an economic entity that will contribute to the U.S. Economy.