The headline on my news summary page was clear enough: “After the JPMorgan Chase mess, we must bust up the big financial houses.”
My first impression was the source had to be The Progressive, Democratic Underground, Michael Moore.com, or some other ultra-liberal web page interested in fomenting an ill-defined revolution against Wall Street capitalists. Not so.
When I looked at the byline, I couldn’t believe my eyes. The article was by ultra-conservative economist Peter Morici, and the publisher was none other than Fox News.com, a conservative medium accused by some of being slightly right of Benito Mussolini.
Morici was commenting on a bad bet by investment bankers at JPMorgan that resulted in a $2 billion dollar loss. Yes, this is the same outfit we taxpayers bailed out after similar shady and risky business by it and other big banks nearly caused the collapse of the world financial system.
Morici details recent history of the deregulation of U.S. banking and the reasons why a strict return to the separation of commercial and investment institutions once dictated by the Glass Steagall Act would not be good policy in today’s banking environment. “Ho, hum,” I thought. “The headline was a come on; this story really is just another justification for letting the self-proclaimed wizards of finance operate any way they want.”
Then came the shocker. Here are Morici’s concluding paragraphs:
“The simplest solution is to once again separate commercial and investment banking, as was required by the Glass Steagall Act, with some modest exceptions.
“Let banks take deposits and make loans, and sell those to investors through investment banks who would do the bundling of loans into securities. Even let commercial banks own securities backed by loans in other regions to balance default risk, but leave the business of making markets and trading to separate investment banks.
“Let banks take deposits and make loans, and sell those to investors through investment banks who would do the bundling of loans into securities. Even let commercial banks own securities backed by loans in other regions to balance default risk, but leave the business of making markets and trading to separate investment banks.
“Commercial banks would continue to be regulated and government insured by the FDIC, and investment banks would be free to trade and take risks with their stockholders capital. If the latter failed from foolish trades their investors would lose their capital, but the taxpayer would not be on the hook.”
What a remarkable dose of common sense. Hurry up, Republicans, and introduce legislation to make this conservative position become reality. It probably would be approved by record majorities in both houses, and President Obama would sign it into law in about 30 seconds.
Of course, this medicine would leave the investment banks with no regulation at all, an undesirable situation, but that could be analyzed and adjusted if needed later. The major problem would be removed--financial institutions “too big to fail” gambling with other people’s money and depending on taxpayers to save them when they lose the bets.
It’s high time to quit fiddling around with halfway controls like the 2010 Dodd Frank law, which contained too many compromises to be fully effective. It’s time to get to the heart of the problem and solve it for the common good.
