The Committee on Oversight and Government Reform held hearings today to discuss the impacts of the bank bailouts and whether Dodd-Frank will end too big to fail. It appears laughable that they are even considering this hearing given the obvious fact that the too big to fail problem has become too BIGGER to fail. The simple way these bailouts were executed (by making many of the large banks larger) means there is no such thing as legislation that resolves the issue. Particularly given the fact that the Volcker rule was squashed.
The real truth of the matter is that nothing has changed since before the bailouts. The Enron banking system lives on. While the Dodd-Frank bill provides some protections it does not resolve the simple problem – our banking system has become a casino that now generates an exorbitant share of GDP. We have become too dependent on the gambling and financial engineering that spurred much of the growth over the last 20 years. And the results speak for themselves. While many want to say we have “recovered”, the truth is that the world’s largest economy is in shambles still. With 9% unemployment and tepid growth we are hardly back to the boom days. And the disequilibrium in the banking system and the misguided government response is largely to blame.
This industry, in its desire for profits, has helped to bankrupt the household sector, exacerbate our plutocratic trend and generated a great deal of instability in doing so. This was our opportunity to get banking back to what it has always been – a 3-6-3 model. Recessions have a very natural stabilizing component to them. Capitalism works when the losers are allowed to lose. This downturn was our market screaming that the losers should lose. But that did not happen.
Banks should be the oil in the economic engine. They should not be the economic engine. Our politicians clearly haven’t figured this out yet…or they’re too cozy with the lobbyists to actually try to notice…
The Josh Rosner and Neil Barofsky testimonies are particularly englightening. Both come to similar conclusions as I have above…
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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