Pity the Poor Bankers

Here is a rant.  Don’t read if you don’t want to hear it.  A lot of  you won’t like it, but it is how I really feel.  I hit my boiling point today and decided to vent.

Over the past few months, I’ve read endless articles and heard a stream of “experts” moaning, groaning, and warning that pending financial regulation will severely damage the banking system if the rules go too far.  These pundits say that the risk is that Congress goes overboard and rolls back the clock to the stringent regulations instituted in the 1930’s.  They issue dire warnings that U.S. financial institutions will become uncompetitive in the global market.   First, that isn’t going to happen.  There is too much money coming from Wall Street to Congress to allow that.  Second, it should happen.

After those “dire” regulations were forced on our poor banking system in the 1930’s, the U.S. went through about 50 years or so in which the overall economy was never threatened by missteps in the banking system.  Those regulations started to be unwound in the 1980’s, leading to nothing but the Wild West casino atmosphere in banking we have now.  Financial institutions accounted for roughly 15-20% of corporate profits during the years prior to the 1980’s.  Slowly, as deregulation took over, the financial sector profits grew to over 40% of the total in the 2000’s – until the brief setback in 2008-2009.  Profits and bonuses became obscene and with that, the incentives to maximize profits produced a risk-at-any-cost mindset.

The money on Wall Street has attracted some of the best minds ever produced in our higher education system.  Physicists, engineers, mathematicians, etc. were lured by the big bucks.  I don’t blame them.  The tragedy in this is that these bright minds could have been used to produce breakthroughs in energy, medicine, or something else I can’t even imagine.  Instead, it drove them to pursue money.

There have been a number of breakthroughs that have revolutionized the world and made the world better for almost everyone.  The Industrial Revolution, the high tech revolution, numerous medical advances, agricultural innovations, etc.  What’s missing on this incomplete list?  Financial innovations.  Oh there have been a number of them, such as CDOs and CDSs.  But those didn’t help mankind, unless you count the number of people that were able to live in homes they couldn’t afford for a year or two.  These financial strides just enriched they pockets of the very few privileged.  Just imagine what could have been had the best minds gone elsewhere.

At a minimum, what should happen is that banks should be broken up and shrunk and riskier undertakings should be separated and subject to much higher capital requirements where only the investors in those firms could lose.  And this is just a start.

But the chances of this happening are zero – at least for now.  My fear, as previously stated in the last post, is that it’s too late.  Fast, cheap unregulated borrowing has already set the stage for the next meltdown.  If so, the next one will push the world into a deep depression.  That looks like the only way the system, absolutely corrupted to the core, will be changed.

Let me add a disclaimer.  I want to be clear that I am not vilifying 99% of the people that work in banking or on Wall Street.  There are many great people in the industry trying to do the right thing.  My disdain is for those at the top of the food chain and those politicians who enable them.

So, worry about and pity the poor bankers if you want.  I’ll reserve my pity for people and things that matter.