Can America afford to keep postponing REAL reform in the banking industry?
By Daniel at 29 September, 2009, 5:31 pm
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FDIC’s Bair suggests a resolution mechanism that collects bailout insurance premiums from the financial industry, allowing bankers to pass bailout costs to the general public (with less media scrutiny). The general public then pays for bankers’ mistakes through low interest on deposits and higher customer fees. The FDIC’s proposed backdoor approach to subsidizing the speculative engagements of banks promises to aid the image of big banks among uninformed members of the public.
The proposed form of resolving bank insolvency is in several respects superior to direct assistance from the Treasury, especially since it would include large insurance companies and hedge funds in the resolution cost support structure. But there are negatives, too, as pointed out by David Weidner. Why burden comparatively responsible financial institutions with the cost of insuring greedy banks? Isn’t it preferable to find a solution with less moral hazard?
The resolution trust provides an implicit guarantee that government will rescue complex financial firms that get themselves into trouble. Equally disconcerting, the injustice against the general public remains as long as so-called competitive realities require the world’s top eight banks to pay 141,000 employees in their investment banking units an average compensation of a half million dollars a year — an incredible pay rate noted in formal estimates. Naturally, big banks get into trouble quickly when their investments don’t work out: They pay out too much revenue in employee compensation. Bailout or resolution trust: Either way the public is subsidizing a lack of meaningful competition in the higher layers of the banking industry.
The big banks exude a parasitic culture to the extent the total cost of their services far outstrips the societal value of their contributions. The raison d’etre for the elite banking culture is to force their financial rewards upward. They do this by making civilization highly dependent upon their services, thus acquiring power to blackmail commerce with paralysis if their demands are not met. In furthering this depravity big bankers establish pseudo-competitive oligopolistic centers like New York or London. These centers create false competitive hubs that facilitate bankers’ claims of lost ‘business advantages’ if top executives fail to compensate their colonels and captains with outrageous sums. They also work to make Main Street overly dependent upon their expertise. Can America afford to keep postponing REAL reform in the banking industry?
Dr.Benevolence
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