A Dim View of Banking
 

Berkshire Hathaway's Charlie Munger: 'Venal Banks Need Reform'. Unfortunately, he's basically predicting that we've paid a ransom to their "Too Big to Fail" status that leaves the banking oligarchy firmly in place spending millions lobbying the government not to change any of the rules. The video link at the end leads to a rather cartoonish but all too true tale.

I think this is all too true.

What IF...
 

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Sometimes I fantasize what would have happened if the US Federal Reserve Board and Treasury Department had allowed the big banks to fail. In addition to guaranteeing deposits up to FDIC limits, US authorities could have guaranteed things like pension funds.

What if Taxpayers’ money had been invested exclusively in those banks (large or small) that had shown "good bankmanship"? I.e. not over-leveraged.

• Credit would have continued to flow.
• Money would not have been locked up in banks that are insolvent or very close to it, merely shoring up their bottom line.
• Major shareholders would have taken the hit, instead of taxpayers.

And last but not least:

• Lessons would actually have been learned.

As it is I keep having the rather unnerving thought that we are following a big, misguided plan straight to h***. Or worse yet: witnessing the greatest scam ever perpetrated.

I hope I’m wrong, I hope I’m wrong. Tell me I am wrong...

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Unfortunately, Stones, I agree with you....

Who are we really subsidising?
 

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Interestingly, Nouriel Roubini has an equally dim view of banking: We Can't Subsidize the Banks Forever. The subtitle of his article in The Wall Street Journal? "Government has to show it can handle major insolvencies".

Mr Roubini, you may recall, was once jokingly dismissed as Dr. Doom. In retrospect, and in fact even now, it seems more appropriate to call him Dr. Realist.

Perhaps the judgement, when the dust finally settles, is that both Paulson and Geithner had views too distorted by Goldman Sachs & Culprits, or were beholden so as to put other interests first. At the outset, many of us want to fully trust the integrity of both -- but certainly there is good cause to question some fundamental calls.

Once again I hope I am wrong, in fact I pray that I am. But I am increasingly becoming convinced that critical opportunities to halt the downturn were missed, early on.

-- ArcticStones


PS. There is a piece of simple arithmetic that I would like to see: Add up the world’s debt, and especially national and public debts. Make a list. Then make a corresponding list of who holds the IOUs. My impression is that those two lists don’t quite add up.

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But, and I don't mean to offend anyone, Americans seem to value money above all else. Money talks. The Golden Rule: he who has the gold rules. There's been a whole generation raised to those mantras. Hard to change.

Now, now. A bit of an over generalization I think. Wall Street, maybe. Main Street is very different.

The article and video fails to put the blame where it belongs, which is squarely on the shoulders of the politicians who bought into deregulation and failed to update the regulation when the world changed.

We're going to fix that.

Too big to fail has got to go, but how do you do that and still provide the financing available for our huge international operations and almost as huge domestic corporations?

Not really. If Main Street were different, this downturn wouldn't be nearly as bad as it is because there would be far fewer layoffs. Businesses on Main Street are mostly products of Wall Street these days: either Corporate subsidiaries or part of a franchise. And so-called Entrepreneurs aren't looking to build a business; they're looking to start one so they can sell it. That means they start businesses that are strictly sales organizations, producing nothing but profits and hiring very few who are paid a salary or even an hourly wage. Commission-only means that it is all about the money.

It's easy to blame the thief for stealing, but the solution is to put locks on the doors is it not?

Nationalize the banks maybe, but if the same politicians are still in control (and they would be), I'm not sure how much that would help.

Some of what you suggest is going on, but I really don't think that is the norm. I really don't think the average American values money above all else, though certainly most would like to have more of it. Wouldn't you?

I think one of the things that has happened to get us where we are is a substantial change in viewpoint; what I think of as the MBA Revolution. In too many corporations now and certainly in political thinking, the future is the next quarter, or the next year rather than long-term sustained growth. For politicians, the window is only to the next election and for too many corporate bigwigs the window seems to be only as far as the next bonus payout. There is rarely a long-term viewpoint in either regulation or corporate governance.

You obviously haven't looked for a job in a long time. It is the norm, and that's the problem. Sure, everybody would like more money, but that is completely different from the Wall Street mindset where money is the beginning, middle and end of all things.

Absolutely, and that is very close to Wall Street's view of things, only Wall Street tends to look at today's news, no matter how inane or irrelevant to real value or long term prospects.
This of course, is because campaigns need to be financed, and business controls the financing. Just look at the $100 million Bush raised in 100 days out of office.

The problem is that there is no real Government interference with Business. It is Business that interferes with Government.

To paraphrase Winson Churchill (speaking of "the few" following the Battle of Britain), "Never in the course of human history has so much been given from the poor to the rich and greedy."

Too big to fail is blackmail. Bankers took huge bonuses for so called profits. Profits they never made. The worst consequence of the bailout is that the bankers suffered no consequences. In fact the bonuses continue. Business as usual for them. Layoffs for everyone else.

We have left the foxes in charge of the hen house.

I understand the line of thinking to which you refer, but would call it something else. Maybe the "Right Coast Liberal MBAs" works better. I was taught the number one goal of any organization is long term survival, not immediate short term profits. Obviously, something changed over the years.

@cwt

Been a while since I looked for a job. Agree that is the Wall Street mindset, but it's not my mindset nor the mindset of anybody I know.

Not sure I understand your problem with employees on commission.... the ones that produce are rewarded, those who don't produce are in the wrong business. Common in sales, but around here at least it is only in sales.

Every bank is by its nature insolvent. Not one could survive if they had to put up or shut up today.... their money is out in the economy in loans. Covering the run on a bank when a lot of depositors demand their money is what the FDIC is supposed to do. Where we went wrong was allowing banks to also be investment houses.

Couldn't agree more.

Something changed in the 1980s when business schools started teaching that Corporations were solely responsible to their stockholders. That leads to extremely short term thinking, and in the end it's bad for stock holders.
No problem at all with employees who are on commission. The problem is when entire businesses are created using that as their business model. In addition to being bad for the economy, it leads to things like multiple robo calls from "extended warranty" companies to your cell phone, using fake caller ID numbers so you can't call back to complain. Who hasn't been getting those lately?

@CWT: It leads to a lot of bait and switch tactics too; see a great ad for something, go to get it, they're out of stock, but have they got a deal for you....

Yes, and they even do it with jobs! Advertised pay is up to $x/hr, but who gets that much? No one.

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Here is an interesting article about transparency at the Federal Reserve.

By the way, that’s $ 2,000,000,000,000 of your money! :o :confused:

The New Masters of Long-Term Strategies
 

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I guess the good news is that somebody is getting it right: The Chinese.

What have they done so far during the financial crisis? Why, they have been most helpful, extending credit to many countries that need it. In return, China has struck deals that ensure them a stable supply of resources for decades to come.

In the meantime, as you say, US and European companies are thinking of the next quarter...

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Perhaps the dimmest view yet of our current predicament...

I'm inclined to believe the dimmest view yet. I think that the bubble that precipitated this crisis was the result of credit gone wild and that the time it will take for individuals to get their debt loads under control will be much longer than is estimated. Folks are going to be cautious for a long while yet, particularly since unemployment is always the last effect to moderate in a recovery. Companies, particularly small businesses, will be very cautious about rehiring until they're sure things are looking good. In a nutshell, there's a big delay before confidence returns to the average Joe.

This is a fun article, relevant to the topic but in a different key:

http://news.bbc.co.uk/2/hi/programme...nt/8040523.stm

<sigh> There's part of me wants to live like that.

A very different financial crisis
 

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Here is a very different kind of financial crisis. There are probably surprisingly many mattress owners that hold a dim view of bankers.

Her daughter may be philosophical -- but I suspect her mother is less so.
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"No good deed goes unpunished" fits the bill here. :-)