I think that the problem is over the counter derivative (aka gambling). All off balance sheet and highly leveraged:
The U.S. Federal Deposit Insurance Corp. and the Federal Reserve Board on Friday said they have found “shortcomings” in the so-called living wills of four of the eight largest U.S. banks, following a review of the plans of financial firms for winding down operations in the event of another global financial meltdown.
All Clinton’s fault IMHO
So, if their “living wills” are inadequate, then the banks threaten to crash the economy, unless they are bailed out, again. What other outcome would anyone expect?
Steve
Showtime has “The Big Short” playing now, almost on endless loop, and I have watched it (again) at least a half dozen times. The scenario goes from the banks (et al) being clueless to having a (hidden) aha moment where they try to shove all the bad paper off their books to the end, where Steve Carrel says “They knew they would bail them out.”
I don’t have a problem with bailing them out, because it’s in the country’s best interest to have a functioning economy, unlike, say Germany in the late 1920’s or the US in the 1930’s. However this time (if it should happen) there need to be actual prosecutions of miscreants. There have to be sacrificial lambs, and lots of them, starting at the top, not the mid-range. And there has to be a “no bonuses” clause, and a “no bonuses by another name” clause, under penalty of death, and I mean “actual death”, not just the dismantling of that particular bank.
The outrage wasn’t the bail out (well, it was, but whaddya gonna do?), it was that the bankers carried on as though nothing happened , including getting their high falutin salaries, fat bonuses, and without being publicly and widely shamed in society.
There was the Swedish option: nationalize the banks, stabilize them, then re-privatize. That is what the US did with Penn Central, and a few other bankrupt railroads. iirc, Penn Central tried that “too big to fail” gambit, demanding a bailout from the government, or they would shut down and crash the economy. Didn’t work 50 years ago.
But the US is much Shinier now. The Swedish plan was rejected, because it was “socialism”. So the government threw money at all the big banks, whether they needed it or not (must not stigmatize the banks receiving handouts said Hank Paulson)
The CEOs of the banks that were totally out of business may have lost their jobs. Ken Lewis of Bank Of America “retired” in September 09. Apparently, he was already in shareholder’s gunsights due to the losses from his acquisitions of Countrywide Credit and Merrill. It wasn’t any issue of the government holding him accountable for gross mismanagement.
Steve
Under the present system the banks will continue to operate much as before. Why not? If they are successful they make a lot of money and if they fail they get bailed out.
Bringing back Glass - Steagall might help
ding-ding-ding!!! We have a winner!
JimA