Banks & Crime: Schools For Scoundrels?
About four decades back a typical banker was an epitome of honesty, integrity, and, in short, a gentleman. It appears that in the past decade or so the increased criminal nexus between bankers, charltans and criminals (aided and abetted by greedy and myopic political leaders) have crippled the banking industry and created a crisis of credibility.
This has created traumatic financial insecurity worldwide. It is becoming clearer that a surgical action is required to set things right. India faced a similar challenege four decades ago, and took a firm stand by nationalizing the banks. It is only when sanity returned that it opened the doors to private banking in the past decade. Thus India has been able to bear the shock engendered by the current global financial crisis.
Arianna Huffington is spot on when she says:
“Unlike the conflict over the stimulus package, this is not an ideological fight. This is a battle between the status quo and the future, between the interests of the financial/lobbying establishment and the public interest.
“The big problem is Geithner is acting as if the crisis we are facing is a crisis of liquidity when, in fact, it’s a crisis of insolvency.
“As Ann Pettifor puts it on HuffPost: ‘Much of Wall Street is effectively insolvent. It’s not that these banks lack cash or capital — it’s just that they’re never going to meet all their financial liabilities — i.e. repay their debts. Ever’.
“Trying to prop these zombies up, as Geithner seems intent on doing, will lead to what Roubini calls ‘a royal rip-off of the taxpayer’ and the risk of ‘turning a U-shaped recession into an L-shaped near-depression’.
“So it’s time to take off the kid gloves Geithner and Larry Summers are using to handle Wall Street and pull the plug on Geithner’s deeply flawed plan.
“And let’s not be distracted by the shiny objects of the financial crisis — corporate jets, redecorated offices, CEO bonuses, etc. — as happened to the members of the House Financial Services at yesterday’s hearing.”
Forensic inspectors from at least four federal agencies will soon begin combing through asset registers, trading ledgers and balance sheets at the 18 or so biggest US banks, says The Guardian. “Line by line, the inspectors will tot up billions of dollars in liabilities.
” ‘In a lot of cases, they’re clearly bankrupt,’ said Dean Baker, co-director of the Centre for Economic and Policy Research. ‘Citigroup and Bank of America have a cesspool of bad assets and without government support, they probably would have failed. You have to ask yourself what we’re trying to do here’.
“Wall Street’s broken banks present policymakers with a series of difficult challenges that are echoed around the world.
“A $350bn (£240bn) capital injection into banks by the US government in October failed to restore stability. A fresh $2tn initiative by the treasury secretary, Timothy Geithner, got a resounding thumbs-down on Tuesday as the Dow Jones industrial average plunged by 381 points.” More here…
Photo above of Timothy Geithner, US Treasury Secretary courtesy Alex Wong/Getty Images
5 Responses to “Banks & Crime: Schools For Scoundrels?”
And your recommendation is…sorry, what was it again? Put the banks in the hands of greedy, myopic political leaders because that worked well in India?
I agree with the analysis of the problem, that the banks are broke, without a plan to recover, and voracious for whatever handouts they can get. In other words, they're a lot like the homeless.
I already proposed receivership. Do the stress test. Have the Treasury – perhaps FDIC – “purchase” the insolvent banks at market prices (i.e. virtually nothing). Sift through the toxic assets and sell them off to vulture capitalists at bargain basement prices. Then re-privatize the “good bank”. While in receivership, the bank can continue to take deposits and make loans. But a new administrator will take over – just as in bankruptcy.
I don't see any other way to get the toxic junk off the banks and prevent them from becoming zombies.
But, but, this can't be true, CasulaObserver say he missed the newscast where the banks have FAILED.
Good question Dr_J.
But before answering your question, yet another question. Why was the entire US nation, along with the financial think-tanks.opinion-makers/media doing for the past two decades when the loot was visible?
Why do we wake up only when the water has reached the nose? Why do we think that the responsibility for everything concerning us is only rests with the government?
There is an old saying “VIGILANCE IS THE PRICE OF LIBERTY”.
Bank nationalization is not for all times to come. I would never have recommended this when Bush & Co were in power. But with Barack Obama and his team enjoying public support and trust, there is no reason to suspect that their intentions would be suspect.
Please understand that if the banks lose trust and indulge in criminal activities, the roots of the a country begin shaking and instability follows that can threaten the survival of a nation. This is not just a case of a bail-out of a company in a crisis.
The banks provide a lifeline to the financial stability of the entire economic fabric of a country/world. Once they begin failing, these can't be left in the hands of a crippled system run by private operators who have no accountability.
At least the government and political leaders can be held accountable. And in this regard elrod has made an interesting point.
Swaraaj, the problem with bank nationalization is that the government can't run a bank any more responsibly or with any better foresight than private owners. (“Myopic,” as you said yourself.) Have a look at Congress trying to oversee Fannie Mae a few years ago (http://www.youtube.com/watch?v=_MGT_cSi7Rs); it's pretty clear they simply didn't know what to do.
As for government and political leaders being “held accountable,” I can't imagine what that means. Clinton wasn't held accountable for the side-effects of the community reinvestment act, nor were the congressmen in that video held accountable for their mistakes. At least private owners have fortunes and careers in the game.