What would you think about a guy who runs around in the street during a rainstorm shouting: “I’m getting wet. I’m getting wet. I want to get dry? What advice would any sensible person give this guy?
The answer, of course, is tell him to go inside where it’s not raining. Too bad our leaders in Washington don’t have that kind of sense when it comes to Wall Street.
These leaders are now revving up for a titanic debate that will focus on how to regulate the financial system so as to prevent another meltdown that didn’t quite manage to destroy the world economy last time but could well succeed next time if Wall Street continues on its present merry way. This regulation-based debate, in essence, is akin to figuring out clever ways to keep that guy running around in the rain from getting more wet without actually forcing him inside.
So why don’t we force Wall Street inside instead? If the main problem is that some firms on The Street are too big fail, force them to become smaller. Break up these financial monopolies. Force them to be in one or two businesses and spin off the others, rather than totally entangled in so many that if just the unbroken giants fails, the whole system is threatened.
Think about it (though little thought is involved). You want to stop being rained on? Get out of the rain. You want to avoid the dangers of too big to fail? Force financial giants to be smaller, so a failure in one of the broken up pieces only threatens that little piece.
I’m sorry if this seems too obvious to be right. I’m sorry if it isn’t counter-intuitive. I’m sorry if some of the best and brightest minds can concoct explanations none but they understand why this is bad idea. Sometimes, as Sigmund Freud once noted, a cigar is just a cigar. And sometimes, in financial matters, what’s obvious is the obvious way to go.
After you break up the too big to fail collectives, you take one further step. You announce, publicly and endlessly, which institutions and which investments are actually backed by federal bailouts in an emergency, and which ain’t. Don’t hint here. Don’t just imply. Don’t leave open to question. Don’t let Wall Streeters and investors only suspect what will and won’t be backed in an emergency. State it with absolute clarity. Then regulate the heck out of investments and institutions that will be protected because that’s where the government (i.e. you and me) are actually at risk..
These two steps will turn the financial community into what it should be, and keep taxpayers off the hook on things that are not rightfully our concern. AND…they will do away with all the angst about Wall Street profits and bonuses, a huge political plus today.
If the gamers on the The Street win big, great. No problem for me or anyone else because they took their risks and they get the bennies. And if they lose their shirts, and they and their investors go down big time, screw ’em. No problem for me or anyone else who isn’t part of their gaming.
I don’t oppose great personal wealth. I don’t envy personal success. I’m just tired of ensuring it for people with one hand on the roulette wheel and the other in my pocket. Aren’t you?