The Volker Plan, will it happen?
/EIN Presswire/ The battle lines for bank reform are drawn. The big banks are on one side with their legions of cash-laden lobbyists. The major governments and international institutions with their huge powers to enact laws are on the other. Each is powerful enough to crush the other.
Who will prevail? The betting should be on the governments. Oddly enough they have reason on their side and they have an extremely angry global constituency on their side. In their minds’ eye they can see the masses ready to revolt, ready to lynch them if they don’t rein in the greedy bankers.
The talk is about separating commercial banking and investment banking. It is clear to everyone that the banks cannot be allowed to take their depositors’ money and use it to gamble while refusing to lend for commercial needs. If the governments can achieve that separation they will be safe from the lynch mob.
Paul Volker, the former Fed Chairman and current advisor to President Obama, wrote an article in last Sunday’s edition of The New York times about just that subject. His arguments for re-separating commercial and investment banking are powerful. They are a call to action now.
Unfortunately, the re-introduction of Glass-Stiegel is not a simple move. The world is far more complex than it was only a decade ago. The problem lies in the cultural shift toward securitization of just about everything.
Only recently a plan was hatched by the Wall Street geniuses who brought us the recession of 2009 that would allow trading in life insurance policies that had not yet paid out. If we were to let banks stay on this path it would not be far from allowing them to securitize dog feces which then would be traded on the various exchanges.
It is this insane culture of securitization of everything along with the extreme desire of the banking institutions to furnish the cash for such actions that has brought us to the brink of financial disintegration. The excuse of the bankers always is that they want to maximize the return for their investors. The reality is that they only want to maximize their own incomes and put their depositors at great risk.
Everyone knows big gambles will end up in huge losses more often than in huge wins.
Thus, the “Volker Plan” is probably the correct approach to our current problems. It would provide commercial entities with badly needed loans for productive uses. It would create an economic environment for growth. I would diminish unnecessary speculative activity.
Will it be a sea-change for the financial community? Probably yes.
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