Posted by: stiltsville | October 2, 2011

The problem with banks

There are too many banks on Wall Street… Gramm-Leach deregulated banking, turning a stable business into a free-for-all.

Before deregulation, banks were safe and boring, for depositors and investors alike. As an investor, you were not expecting windfall returns, but you could sleep pretty soundly. As a depositor, you were not worried that the FDIC would swoop into town Friday afternoon and close the place down. It just didn’t happen.

But the banking industry, led by the biggest banks, grew greedy. They wanted to play on the same playground as the investment banks. They wanted the big black limousines, the champagne, the cover of Forbes… They had stars in their eyes.  So they lobbied for, and received, deregulation.

The bankers, figuring they are just a bit smarter than, well, everyone else, thought they could generate above average returns without sacrificing safety. Yeah, right… That only happens in one place.

Welcome to Lake Wobegon, where all the women are strong, all the men are good-looking, and all the children are above average.–Garrison Keillor

So the bankers get their deregulation and immediately put their capital and above-average intelligence to work. Now take a look at this timeline. There is slow and steady growth until 2000, a month after Gramm-Leach is enacted. The next thing that happens is the dot-com bubble. Heckuva job, guys!

The US economy has been roughly flat since Gramm-Leach. Deregulating banks has done nothing for the average American. Deregulation has eliminated the past ten years of growth in that graph; it has increased stock market instability, and lined the pockets of the bankers. Some people want a safe, boring investment option. The bankers even took that option off the table.

It’s past time for America to take the banks off Wall Street. They’ve proven they can not regulate themselves, so we the people must do it for them. There is far too much at stake.

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