In his recent book - The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash - Charles R. Morris writes:
"The question is whether the Countrywides of the world are risk-taking enterprises or public utilities. You can't be both. If the government is going to be on the hook, by means of deposit insurance, the various federal borrowing windows, or implicit federal insurance for "too important to fail" institutions, bank risk-taking has to be tightly controlled. Cautions, risk-adverse public utility-style banks need intelligent credit and balance-sheet managers, not envelope-pushing high-rollers with eight-figure paychecks."
We are being led to believe that taxpayers have just two options: (1) bailout the banks and brokerages or (2) see the economy go into a tailspin.
But, there's a third option: nationalize the banks and brokerages.
Essentially, this is what the British did with their troubled Northern Rock bank.
Unfortunately, that's not what will happen with failed investment banks like Bear Sterns.
Bear will be bailed out. It is socialism for Bear's rich clients and managers.
To prevent public outrage, we're now hearing that in the future the government will regulate these institutions tightly. By doing so, we're told, regulators will keep risk low so a credit crisis like this will never happen again. But, of course, this is what we heard back during the Savings and Loan crisis.
However, I don't think you can blame the regulators. They work with the regulations they're given, and the finance industry lobbies congress heavily to take away regulation to "free up free enterprise and innovation." But financial innovation is similar to creative income tax accounting: the innovation comes in finding loopholes in the rules and regulation. The high-rollers in finance get paid their eight-figure paychecks to find the loop holes (or create them through lobbying) that will allow them add more risk and take on more leverage.
Perhaps someday the taxpayers are going to come out of their mass media induced hypnotic trance and realize they're being played for saps. When this happens, they won't let the banks fail, and they won't bail them out: We will nationalize them and all the other so called "private companies" who are "too big to fail."
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http://www.economist.com/blogs/freeexchange/2008/03/bearly_afloat.cfm--> Nationalize them or break them up: Can't say fairer than that. And regulate the lobbyists, to boot.