So it seems to me that most commentary on the ongoing financial crisis regards the return of universal banking (combined retail, commercial and investment banking) as a saving grace. Were it not for the repeal of the Glass-Seagull Act in 1999, then JPMorgan could not have bought Bear Sterns, Bank of America could not have bought Merrill Lynch, and we wouldn't have the joy of Morgan Stanley and Goldman turning themselves into bank holding companies.
The argument, as I understand it, is that universal banking supports volatile investment banking activities with stable, secure retail banking. But surely this goes the other way, too. Why is this a good thing to more tightly integrate those inherently innovative, risky activities with regulated banking, which above all is meant to be sturdy? It looks to me like the AIG model: a vast, traditional insurance business married to a smaller, more creative financial-products division. And that worked out. Oh, wait...
I don't see why this whole kerfuffle doesn't reinforce the "thin banking" model: You want deposit insurance and government protection, then stick to simple retail banking. You want to be cutting-edge? Good luck, but you're on your own. As this crisis broke, I read an analogy that the financial sector was like a utility next door to a casino, and that the government would raid the utility to keep the casino going. That may be the right thing to do, and may ultimately be better for the utility than letting the casino close. But some separation still seems like the right thing to do; I don't see how setting up the roulette wheels in the turbine hall puts us in a better place for the future.
Wednesday, October 08, 2008
Universal banking
Subscribe to:
Post Comments (Atom)
2 comments:
Here's a better analogy:
Think of a beer hat. You know, one of those baseball caps that has two cans of beer and straws going into each, that merge into one straw, then you drink it.
Now think of the Glass Seagulls Act as the giant foam pointing finger, and bankers as the bare-chested fan.
Well, the bailout is like the body paint smeared onto the fan to make him look like he's the mascot.
The problem is that this crisis requires the "John 3:16" guy with the rainbow 'frizzy clown hair' wig and Henry Paulson is like that guy who drank too much Stadium Beer and has torn bits off his bucket of popcorn in order to fashion some sort of rally cap.
Debt holders are like the kid crying for cotton candy, and stock holders are like the suffering wife who regrets saying "We should do more things together"
And then UFOs landed on the 50 yard line and said "People of Loss Angel us, I come from the plant Ner-to and bear witness to this thing you call the O-limp-ics. I salute you!" Then Lionel Ritchie sings "All night long" and the 1984 Olympics are over.
I hope that clears things up.
you know, this just may be the most lucid explanation of the whole mess i've seen.
Post a Comment