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Journal Stargoat's Journal: New Bank Regulations? 1

There's discussion about the necessity for new banking regulations in Congress today. Of course, all this would be easily resolved by the elimination of banking regulations. Specifically the 1999 Gramm Leach Bliley Act (GLBA). GLBA is the reason why Too Large to Fail Banks are making Too Stupid to Succeed Gambles. Companies and people will always act to maximize their benefit. When a bank (or any business, such as GM) is too large to fail, it leads to moral hazard. In the case of a bank, this moral hazard typically results in poor investments and misleading consumers. For an auto company, this might lead to poor union negotiations or mismanagement of long term production.

Gramm Leach Bliley overturned the 70 year old Glass Steagall Act of 1933. It was an effort to make the United States more competitive internationally, allowing the CitiBanks and the Lehman Brothers to form massive conglomerates, mixing Wall Street and Main Street banks. Of course, it was precisely this mixing that led to the 2007 Financial Meltdown, AKA Second Great Depression.

If Congress was serious about fixing the Second Great Depression, it would start by reworking and reinstating Glass-Steagall. It would heavily subsidize community and state universities. It would legalize marijuana. It would end the wars overseas, then shrink and make transparent the military. It would create a Service to Eliminate College Debt program. It would heavily restrict and pull back on the outrageous EPA and ADA. Until these things happen, the Second Great Depression will continue.

Fixing immigration would strongly help. This would be accomplished by streamlining legal immigration and punishing through creating an expensive path (either through service or through monetary fines) to legality.

Education pays enormous dividends. An educated populace is a productive populace. Although we as a nation require manufacturing jobs, these jobs can be filled by educated and productive engineers. Decrease the costs of engineering and science degrees.

Millions are needlessly in jail due to buying and selling marijuana. A plant that easily grows and harms little cannot be outlawed. For comparison, firearms are infinitely more complicated to create and maintain. But attempts to outlaw them have failed in all societies but one island nation, where even this only lasted due to borders closed ala North Korea. These is no need to waste money incarcerating for marijuana crimes, nor waste the incarcerated man's free market labor.

The people who have already contracted debt for a college education cannot have this debt forgiven. Under no circumstance should the US Government ever participate in a debt forgiveness program for debt voluntarily entered into. Instead, a not very onerous program should be created to substitute labor for debt relief. One weekend a month, two weeks a year, though this program should not involve carrying weapons.

The EPA and ADA have created so many regulations that creating and maintaining businesses is difficult. This is an anchor on the economy. Although most small businesses are poorly planned and poorly executed, these drags should not be there to exasperate a bad situation. The EPA and ADA are commendable goals, but have generally moved into extreme areas that they were never intended to be in. Most government programs will do this in an effort to justify growth. This tendency must curtailed by Congress whenever possible.

Most importantly, the financial backbone of this country must be fixed. To do this, a Glass-Steagall separation of different financial regulators must be implemented. The free market works with many small businesses competing with each other. As a country, the too big to fail banks are good when they provide commercial services to other banks. But these banks cannot also create mortgages, sell these mortgages, insure these mortgages, and place a value on these mortgages. Information disparity will necessary lead to corruption, both of the buyer and of the Congress itself through lobbying efforts.

These small steps will fix the financial disaster. Greece will be able to topple and other nations in Europe too. But by increasing the size and complexity of the global economy, the United States can insulate itself from the worst of the shocks and make itself stronger when she emerges.
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New Bank Regulations?

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  • One estimate I saw is that the way the market is moving JPM has been losing about $150m a day as the market moves against their CDS trades. This on top of the $2b already announced. Jamie Dimon says expect more lossses and volatility.

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