There was a great speech by the president of the Federal Reserve Bank - Kansas City. He spoke on what he thinks we need to do to get out of this financial crisis. But he also talks about how capitalism was hi-jacked by government and the mega-banks.
Financial Reform: Post Crisis?
Exerpts...
Some believe that that the industry is over-regulated, which may be true, but we should not confuse over-regulated with well-regulated. ... As well-intentioned as the Dodd-Frank Act may be, it will not improve outcomes.
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Today, I am convinced that the existence of too big to fail financial institutions poses the greatest risk to the U.S. economy. The incentives for risk-taking have not changed post-crisis and the regulatory factors that helped create the crisis remain in place.
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It is no coincidence that two principal features of this crisis were heavily bloated safety nets and major financial institutions that were treated as being too big to fail. History shows that these two elements have become more intertwined – the growth of one is linked to growth of the other, in an increasingly pernicious cycle.
In other words - this is financial terrorism. The mega-banks can claim any type of calamity, and they will get bailed out. They could pay someone to threaten to blow up the financial institutions unless $700B is given. What's the difference between that and what really happened?
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How can we change this game in which some institutions are repeatedly doubling up after taking losses, while public authorities are forced to underwrite the losing streaks? There are a number of options that currently are in the works: more effective regulation and supervision, higher levels of capital, and a resolution policy for too-big-to-fail institutions. However, one additional option used after the Great Depression still needs to be introduced: Glass-Steagell type limitations on the activities of those organizations that are otherwise too big to fail and that so dramatically affect our national and global economies.
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So long as we have systemic organizations operating under the government’s protection, we will face the matter of whether we have the will to allow the market and bankruptcy to resolve them. In a major crisis, there will always be an overwhelming impulse to avoid putting such institutions through receivership. Always, it is feared that public confidence will be shattered, creditors or depositors at other institutions will panic, and that there are too many connections that will bring down other institutions. In addition, important services will be lost and the international activities will be too complex to resolve.
Many of these fears are likely overstated. I maintain the view that the long-term consequences are much more severe if we fail to take action to end this cycle of repeated crises.
This is a really good speech and it's simple to follow.
Some other things he mentioned...
- You can have Dodd-Frank or whatever regulation - it won't matter unless people enforce the rules.
- Banks feel they can engage in very risky endeavors knowing that they will not suffer any losses because they will be bailed out.
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