In the aftermath of our families' financial portfolios being cut in half because reckless risk on the part of Wall Street, suddenly there's a lot of populist anger at the banks that brought the world economy to a screeching halt. It appears that Congress is finally set to take on legislation regarding regulation of Wall Street trading practices.
Just last week, the Securities and Exchange Commission announced that it was suing Goldman Sachs because of the financial tricks they pulled on investors. It turns out that Goldman Sachs had packaged together credit default obligations called "Abacus deals," comprised of mortgages they knew were likely to default, and sold them to investors anyway.
The kicker is that because Goldman Sachs knew of the risk, they bet against the investments they just sold. And when the securities crashed, Goldman Sachs walked away with a cool $15 billion. If you were one of the many that were swindled, you were S.O.L.
How did Goldman Sachs react to the news that they were being sued for swindling (they'll get out of it – money buys a lot of power in Washington)? News reports show that they're handing out $5 billion to their employees as bonuses. I knew I should've been a finance major.
Since the crash, there's been a lot of time and effort made at drawing attention to the problem of "Too Big to Fail." The logic is that Wall Street giants should be prevented from getting so big, so as to not require a taxpayer-financed bailout once their own destructive decisions backfire.
The problem is, simply addressing "too big to fail" isn't good enough. Simply breaking them up and promising not to bail them out in the future doesn't actually solve the problem. Bailouts are still going to occur in this scenario.
No matter what any administration says about bailouts, the financial system is always going to be rescued. No president wants to go down in history as the one who let the financial system crash on his watch. For that reason, even Ron Paul would've eventually succumbed to bailout fever just to avoid being the new Herbert Hoover.
Now, sure, I'm all for breaking up the banking industry giants like Goldman Sachs and Bank of America. However, we can't just assume that we're in the clear by breaking up the biggest banks. As Nobel Prize-winning economist Paul Krugman pointed out, the Great Depression did not start when the big player fell, but when the fall of the minor players created a mass panic that shut down the whole banking system.
The key is to regulate the industry by keeping a tight grip on it. Banking isn't supposed to be exciting, and when it is, it spells danger for almost everyone. Since the ATM was invented in the ‘60s, has there been a single financial innovation that's improved the lives of everyday people?
Is this stance "anti-business"? Probably. But forgive me if I'm not that concerned about the short-term profit incentive of overpaid paper pushers when they just got through raiding my parents' IRA accounts.
When similar shenanigans were pulled in the ‘80s, the resulting S&L crisis was confined mainly to the United States, but this recent episode engulfed almost every country not named China. What changed?
In the '90s, President Clinton did several things he shouldn't have to the banking industry. First, he signed a bill in ‘94 that scrapped the McFadden Act; legislation that originally had confined banks to only be allowed to operate in one state at a time.
The second action occurred when Clinton signed a bill in '99 that gutted Glass-Steagall; the legislation that had long separated investment banks like Goldman Sachs from commercial banks like where you put your savings. What resulted was, naturally, mass consolidation and supersized financial players.
Both pieces of legislation need to be reinstated, as well as caps on executive compensation structures. Yet none are part of the reform bill going through Congress, a debate that will likely end up the same way the health care bill did.
President Obama, in his noble yet misguided, never-ending quest for bipartisanship, will have tossed out the necessary provisions in an effort to secure bipartisan cooperation. When it fails, we'll end up with legislation that won't fix the problem, only paving the road to another financial meltdown.
Read More
Three Air Jam teams take home the win
October 12, 2012Nineteen teams shimmied, shook and flipped for a sold out John R. Emens Auditorium on Thursday night during the 25th annual Air Jam.
Bill Clinton Speaks at North Central High School
October 12, 2012Former President's Speech Could Have Effect on State Senate Race
