Thursday, July 23, 2009

Obama Open to Bank Fees for Risks

Obama, at a White House news conference last night, said the U.S. may need a mechanism similar to the Federal Deposit Insurance Corp. for firms that engage in “some of these other far-out transactions” that put the financial system at risk.

“So if you guys want to do them, then you’ve got to put something into the kitty make sure that if you screw up, it’s not taxpayer dollars that have to pay for it, but it’s dollars coming out of your profits,” he said.

Isn't this just a very convoluted way of limiting the use of these instruments by essentially imposing a "tax" on firms that want to use these things?

Why not just regulate them or, better yet, re-impose Glass Steagall and don't let banks do these things at all. Non-banks who do them and blow themselves up don't get taxpayer support.

Clean and simple solution.

The Obama Administration is so loath to do away with the current financial system that it will do anything to sustain it even with these "Rube Goldberg" type measures.

In 2008 Volker said that intermediation did little for the real economy over the past 30 years, except increase risk substantially.

(By the way, I've been saying that, too!)


Pentagron said...

Ahmen. Obama has it wrong. Federal depository institutions need to be separate from investment banks and should not be allowed to speculate. Investment banks can take on all the risk they want as long as they don't cause systemic risk. (Which is why we need a systemic risk regulator.) There is another important reason to bring back Glass-Steagall: perhaps it would spur the return of boutique investment banks so critical to financing growth industries in America. When Glass-Steagall was abolished, the big commercial banks gobbled up the boutique i-banks (such as H&Q, Montgomery, and Robbie Stephens) and then proceeded to destroy them. These i-banks were crucial to the development of America's leadership in microelectronics, software, the internet and biotechnology. America won't spawn a vibrant new growth industry (think Green Tech) without the boutique i-banks. We need a return to Glass-Steagall. What part of this is so hard for Obama to understand?

mike norman said...

What part of this and so many other things does Obama find hard to understand?