A "quasi" risk-free banking industry is very simple to define and I am a proponent of it: Simple asset-liability management, in other words, deposit taking and lending under strict risk management metrics. Yes, there is no risk-free in any enterprise that is supposed to be profit oriented, true, but I very much favor a return to a strict banking-broker separation. Depositors of cash should NEVER EVER fear again that their funds are at risk because of traders that went on a rampage. It makes zero sense.
Thus, a bank should be an entity without ANY brokerage business, without proprietary trades, without facilitation teams (= prop trading, well, almost...), no underwriting or advisory, no research groups, no nothing other than simple asset and liability management of cash, short-term loan management, the limit should be well defined risk limits and notional ceilings of extended business loans. Period. Pretty simple to define in my book and we would not need Basel 3 and 4 and 5 and what else will come in the future.
There was a discussion going on involving Martinghoul and I suggested ways to change this current global economic mess and this is a very practical way to start cleaning up the worst of the financial industry.
Then you have brokers that are strictly regulated to ONLY facilitate the making of markets, selling of newly issued shares, issuing M&A advice, and such forth. Some argue that being an arranger in IPOs always involves risks. Yes, true, but it can be mitigated. No broker should be allowed to underwrite insane amounts of stocks that only end up on its own balance sheet because they cannot be distributed. The whole process of IPOs and secondary offerings should be re-designed, companies who should go public SHOULD NEVER EVER AGAIN be guaranteed a price NOR number of shares they can sell to the public UNTIL the public actually takes up shares as a pure function of demand. I understand perfectly well that there are huge monetary interests involved, heavily backed by lobbyists that argue to the contrary but hey, will anything ever change to the better when being in bed with lobbyists.
Additionally I do not understand the whole political campaign financing in the U.S. Is this a joke? Since when should politicians and political groups EVER be financed and supported by the very same entities they are supposed to later regulate??? Of course the result of abolishing any campaign financing will be that the money whores who currently sit in Washington need to get out and make their dishonest living in the private industry rather than at the expense of taxpayers.
How can all this change be undertaken? This is where the real crux lies: It can't until the pain on the street becomes so impossible to bear that the ordinary man starts to rise up against the rigged system. We are still too far away from that. The system is so well designed and lubed to benefit those who are complicit that change can only come from the very bottom of the food chain. As soon as those individuals feel they are cheated enough and left out then the time has come for those majority of people to rise against the established institutions, not a second before that.
Sad but true in my opinion.
Quote from logic_man:
"Warren said while all the details of the trades are not known, banks should not be taking risks â risky trades should be left to financial institutions like hedge funds. Warren said she has been warning for years about the risks posed by larger and larger financial institutions."
I'd like to know what in the world a "risk-free" banking industry would look like.
Liberals just do not seem to understand risk at all. Risk is all-pervasive and no amount of oversight can fully mitigate it.
JPM lost their own money here and aren't looking for any kind of bailout that I've heard of.
I'm just not seeing the rationale for any government involvement in the situation.
