Published in CommPro.biz 2013.05.06

The Disposable Bankers

Matthew Marshall Taylor is probably on his way to jail. The 34-year-old took a wire fraud plea deal for making up stuff to cover some wild trades that cost his employer, Goldman Sachs, $118 million. The charges against Taylor are not as serious as they might be because his crime did not put Goldman Sachs’ financial existence at risk and he followed his usual work patterns. Understand, Taylor didn’t steal anything; he just threw Goldman Sachs’ dice for more bucks than he was authorized to put at risk. He was trying to look good by making a big killing and maybe increase his take home pay. Apparently he was having trouble getting by on the over a million and a half he was paid in 2007 when all this came down.

While we understand that Goldman Sachs couldn’t allow this kind of reckless behavior –they had no choice but to prosecute Taylor– it does, however, seem ironic that a minor player goes to jail for covering up reckless financial behavior at, of all places, Goldman Sachs. The same outfit that crafted investment vehicles referred to within the firm as “Crap” so they would look like good stuff, then pressured the rating agencies to bless this crap with top notch ratings. While Matthew Marshall Taylor never put the stability of Goldman Sachs at risk with his $118 million loss, in the same time frame Goldman Sachs put the World Economy at risk with reckless bets that went bad crashing that economy.  

Nobody from Goldman Sachs is facing jail for those bad bets. In fact their head honcho is so arrogant as to claim that he is “Doing God’s Work.” He feels free to mock the members of a Congressional Committee and lie through his teeth while testifying under oath – a felony. He is not facing prison time, nor are any of the other monster bank executives whose reckless behavior, in concert with Goldman Sachs, drove the world economy off the cliff. Not only are they not headed for jail they are right back playing the same reckless games. Why wouldn’t they? They are livin’ large, taking home carloads of money, secure in the knowledge that if they blow it the taxpayers will come to their rescue again, and again, and again.

The Dallas Federal Reserve Bank has a proposal to break these monsters up and take the taxpayers off the hook. In a Bloomberg View OP-ED, Joshua Rosner, a financial research guru takes another tack. He picks up on the monster banks’ defensive position that frames them as part of a worldwide system. Rosner suggests “outsourcing” these fragile monsters, urging them to move to some other country whose citizens don’t mind crazy bankers. These banks do little or nothing for America. There are thousands of slightly smaller banks more than able to support our banking needs. Banks that would no longer have to compete with the Las Vegas style banking model the monster banks represent.

We like it. Let the monster banks set sail, and as they disappear over the horizon taking their risky behavior with them, we can all breathe a sigh of relief.

Published 2012.01.30 in CommPRO.biz

Too Big To Loan?

Earlier this month (2013.01.16) the president of the Dallas Federal Reserve Bank, Richard Fisher, delivered a speech worthy of a Texas straight shooter. It was followed up the next day by a 30+ page report supporting the need to deal with the danger a handful –about a dozen- Too Big To Fail (TBTF) banks present to our economy.

These are the same financial monsters whose reckless actions pulled the rug out from under the world economy and brought about the 2008 crash. The folks who put millions of people out of their homes, crippled small businesses and drove the unemployment numbers in America sky high. The same handful of reckless banksters, who rolled the dice, lost and left the rest of us with no alternative but to bail them out.

In an effort to avoid a repeat of this disaster the Congress passed the Dodd-Frank Act. In the end the TBTF banks’ lobbying efforts allowed them to stay focused on risky speculative (AKA gambling) deals, knowing full well that contrary to its intent, Dodd-Frank does nothing to protect against another taxpayer bailout. Mr. Fisher concedes there’s little chance that we can rein-in their reckless behavior in the short term. He does, however, offer an escape hatch to take the taxpayers off the hook to some degree.

If he had his druthers, Mr. Fisher would slice the monster banks into separate entities, none large enough to destabilize our economy. He would peel away all of their financial activities that fall outside the banks’ traditional role. While that remains the long-range goal laid out in the Dallas Fed’s report, their short-term goal seems to correct much of the problem.

Mr. Fisher points out that the insurance protection created in 1933 –The Federal Deposit Insurance Corporation (FDIC)– was intended to cover our hometown and regional banks. The 98.8% we ordinary folk are used to dealing with, not the 12 monster banks, the 0.2% who hog nearly 70% of all banking assets. Assets we furnish them with to make small business loans and create jobs. But that’s not what the use it for. Instead they use the free money we furnish to make wild bets, secure in the knowledge that if they lose, we pay.

Restricting FDIC protection to its intended role would roadblock moves like the one Bank of America made the first of this month (January 2013). They moved derivative contracts worth $15 trillion from their broker-dealer division to their insured depository institution. Guess who’s on the hook if those puppies go bad?

It’s past time that the low interest cash we provide the banks goes to the 98.8%, the regional and Community Banks who will provide small business loans. If the monster banks -the 0.2%- want to gamble, let them do it with their investors’ cash. And make sure those investors know that their funds will not insured by America’s taxpayers.