Veteran bankers support strong regulation of banks, exhibit Frankenstein’s remorse

If you think the crusade for increased regulation of the financial industry is just populist fury—a battle between the haves and the have-nots—you are wrong. Contrarily, many of Wall Street’s veteran leaders are lobbying vociferously for more regulation of big banks, some of which they ran during their heyday. An article released today in The New York Times explores this irony.

Armed with what constitutes a compelling squadron of financial gurus, Paul A. Volcker, chairman of the Federal Reserve during the 80s, calls for very strong regulation.  Mr. Volcker believes that restricting proprietary trading of banks is the silver bullet.  In fact, some of Mr. Volcker‘s cohorts believe that this proposed solution to the financial crisis is shortsighted and that Congress should go as far as to reenact the Glass-Steagall Act.

Am I the only one that finds this odd?  What is the old guard’s motivation for supporting more regulation of an industry that in many ways, it helped to create?  Did it lose millions of dollars and therefore has become sour? I have no clear answer. 

But, I am reminded of Marry Shelly’s "Frankenstein".  Perhaps the old bankers feel responsible, at least in part, for helping to create a family of financial monsters, ugly giants composed of blended parts taken from different financial intermediaries—an investment bank here attached to a commercial bank there. In their quest to create the perfect, most profitable financial service corporation, everyone has suffered.  Like Frankenstein, they, too, have learned the price of pursing glory at all costs.

What do you think?

[ Read The New York Times article. ]

Comments

[James F.]

[Perhaps the old bankers feel responsible, at least in part, for helping to create a family of financial monsters,]

Kevin, if you think old bankers feel anything, anything at all....then you don't know old bankers. :)

This seemingly inexplicable big push for regulation does several things, all of which are useful to the bankers:

1) They lend an air of legitimacy to the financial sector.

After all, if banks are "regulated by the government," what they do and how they do it must be legit, right?
The financial sector is already one of the most heavily-regulated parts of the economy. Yet, despite this, these people have succeeded in ripping off the taxpayers for billions (if not trillions) of dollars.

Ask yourself: precisely what are the regulators going to do differently this time that they didn't do before?

2) Gives the very people the regulations are supposed to "control" an opportunity to write the rules they will be operating under.

Kevin, regulations are not written in a vaccuum. It would be a whole different ball game if the bankers were sitting helplessly on the sidelines wringing their hands, but that's not what they'll be doing. They will, instead, be spending tens of millions of dollars to help guide the consciences of the politicians (I'm trying to be polite here) who will be writing any new legislation. Money talks in this country and NOWHERE is that more apparent than when it comes to the writing and enactment of regulations.

3) Establishes a system for the bankers to game.

Regulations typically have all kinds of ifs, ands, and buts written into them. The more complex they are, the more toeholds they provide for people looking to evade them. I know this sounds counterintuitive, but look at the US Tax Code as an example. The Tax Code is not a phone book-sized document because it is so thorough. Nope. It's a phone book-sized document because of all the exemptions contained within that allow huge corporations to get away with paying little to no taxes while Joe Sixpack takes it in the shorts.

4) Finally, regulation allows those currently in the banking game a chance to keep those who would *like* to get into the banking game out.

Regulation invariably favors incumbents. Who, for example, is better equipped to comply with Sarbanes-Oxley: a new startup that doesn't know where its next dime is coming from, or a well-established firm that has a ton of money in the bank and can afford to dot all the I's and cross all the T's?

In short, there are few better ways to make sure that banking remains the "old boys club" it has traditionally been than for bankers to clamor for more regulations. Bankers, after all, are like any group of people: they look out for the interests of the group, first. Please don't mistake all the noise the bankers are making for some sort of newly found pro-consumer sentiment because it's nothing of the kind. These guys know the taxpayers are seriously angry at them* and all that's happening here is that they are pre-empting the charge, so to speak.

As you discovered to your sorrow with the CARD Act, the only thing that ever changes is how, exactly, these people will be making money. The fact that they WILL be making money (and lots of it, no mistake) never changes, regardless of however many "tough new regulations" the politicians will doubtless brag are in place. There's little point in locking up the henhouse when the fox is already inside and, Kevin, I can assure you that the foxes have no intention of leaving anytime soon. :)

*An anger which, if you'll excuse my saying so, has been tragically misplaced, IMHO. As a consumer, I can keep my money away from, say, Citi by simply not doing business with them. As a taxpayer, however, my money has been involuntarily given to Citi (among many others) by a government that is now willing to shore up bad decision-making in the private sector with public funds.

The government's willingness to back these guys up with your money and mine is the -real- crime here.