New restrictions on banks.
Some of these concepts are good and some are misguided. Of course it places all the responsibility on the banks for the mortgage fiasco and none on the existing regulators, or the politicians that were both asleep at the wheel and encouraging of risky sub-prime lending.
We do need to solve the “too big to fail” problem. But AIG was the weakest link in the whole process and they were not a bank. This should be a gradual process and limit size over the next decade and not try to unwind the whole system in a few months.
Plus it is not just banks whose failure can be such a kick in the stomach for the economy. If big insurance companies, big pension funds or especially states (like California or New York) go bust it will have a similar ripple effect on the economy.
Obama is saying if the banks do not restrict their business then their debt will not be guaranteed by the government. But if a business chooses not to follow these rules, gets enormous like AIG, Lehman Brothers and Bear Stearns did then when they fail they can still destabilize the economy.
Also the concept that a bank will have zero proprietary trading is too extreme. I agree that the risk these banks take should be in proportion to the balance sheet but eliminating the business entirely will make them less profitable and less viable in a world competition.
But generally it was not the proprietary trading that got the banks in trouble. It was the stupid real estate loans and mortgage risk they took on at the urging of Barney Franks and others. There are lots of ways to lose money and increasing the ways and likelihood is where the government really excels.
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