–Three problems: The banks, the banks, the banks

The debt hawks are to economics as the creationists are to biology.

The banks’ lending practices caused the recession. They were rewarded by being bailed out.

Now, the banks’ paperwork violations will cause the second slump, or at the very least, extend the current slump, and undoubtedly, the banks will be bailed out again. Everywhere you look, the problem is the banks, the banks, the banks.

No, it isn’t China. No, it isn’t the federal deficit. No, it isn’t the dopey Tea Party, or Obama’s wishy-washy leadership, or the Supreme Court’s terrible decision on corporate political spending. No, it isn’t interest rates. The problem is the banks and the lack of supervision, thereof.

These institutions, fundamental to our existence as a capitalist economy, are dramatically under-controlled. Our law enforcement pays far more attention to drugs and driving, than to the money handlers. Meanwhile, the money industry’s “masters of the universe” make drug kingpins look like poverty-stricken choir boys.

The money industry should be the most closely watched industry in our economy, yet it is not. They are given a pass based on trust. Why do we continue to have faith in criminals, who wear three-piece suits and sit in posh offices? It makes no sense.

We should stop spending so much time and money on marijuana and speeding violations, and devote our resources to bank supervision.

There was a time when banks were limited to banking. Today, they can do anything they damn-well please. We should take the next trillion to be used for bank bailouts, and spend it instead on bank supervision, including prosecution of the higher-ups, none of whom have been touched by the evils they have done.

Enough with trusting these crooks.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity

6 thoughts on “–Three problems: The banks, the banks, the banks

  1. What do you think of the idea of prohibiting the banks from “printing” money and returning that power to the government. Some want to put the banks on 100% reserve. What’s your take?


  2. Andrew,
    Just as an aside, banks lend against capital, not against reserves. The reason: They are allowed to borrow unlimited reserves from the government, other banks or private parties. One of my companies lent banks many millions each night, in what appropriately were called “overnights.”

    Perhaps you might want to restrict that borrowing ability.

    At any rate, I’m not clear on how restricting banks’ ability to lend would help the economy. You’d have to say a bit more about that.

    My belief is that banks should exist in the narrow business of banking, i.e. savings and checking accounts, and home and business loans, and that other financial transactions should be done by organizations with equally limited functions — and each of these functions should closely be regulated.

    Rodger Malcolm Mitchell


  3. I am not exactly where you come up with the assumption that banks are under regulated. Much of this started with the collapse of the housing bubble back in 2008’ish when banks were giving mortgages to people that were not able to actually afford them.

    So you could see this as the banks faults since they do give money to people that no normal person would do, or you could dig deeper like a real economist.

    We both know that the two largest holders of mortgages where Freddie Mac and Fannie Mae. They are both privately owned companies that are financially protected by the federal government. Since both these government are then under federal observation, there were quite a few regulations passed to make sure that they were properly ‘observed’.

    The larger problem with knowing that your money is financially backed is that you become less concerned with risks. The second problem of being backed by the federal government is that you must submit to their regulations. The combination of both of these make it very hard for a banker working with the two federal companies to say no. This led to the increase of bad loans to families that could not afford it and similar situations. It was under many of the currently imposed regulations that many of the poor loans were made and backed by US Taxpayer money.

    The oil well in the gulf coast had regulators and when investigated, they turned out to be taking bribes. FDR tried to have the AAA enforced by regulator’s and he needed to hire many more since the farmers they were supposed to be watching were paying them with some of the government money they were receiving.

    Instead of trying a an increased government capacity, try making it so the bank is responsible for its own money. A completely private bank will realize the risks of making a bad investment and will work much harder to try and make better loans than one that has less to worry about since it is following the ‘regulations’.
    p.s. Should the federal government monitor me whenever I loan a friend money, or only once I start letting him borrow a certain amount? Since a bank is just a group a people(taking out a lot of it) with a company license lending money. Let them be responsible for their money and their investors money.

    If you would like any article that I may have pulled something from and did not post, just comment and I will post the relevant sources. I would like to have a friendly engaged conversation sometime if I could.


  4. Jim,

    If you are saying regulators take bribes and/or may be incompetent, I agree. So are you suggesting regulation has no value?

    If you are saying the banks are at fault, not the regulators, I somewhat agree with this, too. But, given the unregulated or poorly regulated power to make risky millions, most businesses will take advantage of that opportunity. If there were no police, more people would steal, but history shows if you add police, you reduce crime.

    We had a mayor who went to live in Cabrini Green, the most crime-ridden project in America. She was surrounded by police. During her time there, crime dropped to zero. When she left, crime popped right back up.

    I also agree with your notion of bank responsibility, or more specifically, bank executive personal responsibility. Send a few to jail, and things would get better, quickly.

    Rodger Malcolm Mitchell


  5. The banks are the problem, I agree with you. And our system it stupid and corrupt!

    But help me understand something. Didn’t Clinton
    tell or order banks to make mortgages for people who couldn’t afford them in the fist place?
    A banker told me the government said to this or else. You can’t open new locations or ATM’s.

    Just sign here were won’t check your income…wink…wink

    Banks or government policy? Who will kill us first?


    1. There were many protests about “redlining,” i.e.,not granting mortgages to poor neighborhoods. And banks were praised for helping poorer people to acquire the American dream.

      So yes, banks took it to the other extreme, encouraged by the profitable fact they could sell those mortgages to Fannie Mae. In 1977, the Community Reinvestment Act provided that federally insured banks “help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound operations.”

      What are “safe and sound operations”? No one knows, and enforcement was almost non-existent.

      The government took down the speed limit signs, and told everyone to “drive safely.” Some people began to drive 100+ mph and crashed.

      So who was at fault, the drivers or the government?

      Rodger Malcolm Mitchell


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