Reforming the banking system?

Hey Bog-Hubert — what’s the matter — you seem more than usually incensed by your morning paper. Perhaps you should quit that habit entirely? It does not seem to be good for your digestion…?

Yeah, and mercifully hasten the inevitable demise of the print news media? Has anybody thought about what will happen if the internet conks out or there is a prolonged power failure that will put a wholesale gag on TV and radio, including all the wingnuts?

By all the space junk in ol’ Gaia’s orbit, you really can scare an old man even before his morning coffee. But what is it that is getting your goat today?

It’s the hubbub about the financial institutions.

What about it?

Well, here they go, blatantly returning to their evil ways, the same that caused the financial meltdown a year ago, after having received all those billions in taxpayer money — as if nothing happened. And people — even supportters of the administration — beginning to wonder how badly it really is beholden to Wall Street, because it doesn’t seem willing to impose the regulations people expect. Hey, look, even Paul Krugman is starting to complain about it, here’s a column in the New York Times (9/21/09) where he is berating the president for not doing anything about it — and he was one who supported the bailouts. if I remember correctly…

Well, you could argue that regulations wouldn’t really be much use in all this.

Look, the financial institutions are so vehemently against them, — why wouldn’t they? — that no matter how much of the suspicions about the administration being ‘beholden’ to them, they surely would be powerful enough to spike them with so many loopholes and amendments and compromises that they’d be impossible to monitor effectively much less to enforce. And they already have all those loud voices — we don’t have to mention names, right? — screaming socialist takeover of the banking system and big bad government interfering in private enterprise.

But what should they do? You can’t let them just go back to the way things were, that everybody says led to the trouble we’re in and that will surely just get us into the same kind of trouble again?

I guess you are right. But perhaps there’s another way. How about encouraging, instead, the founding of banks or credit unions — perhaps with tax incentives or some such device — that voluntaily will adopt practices conforming to the desired patterns? Some meaningful rules about executive pay and bonuses, for example. How about getting them to agree to some kind of ‘ante’ or escrow system — and account that specifies not only what bonuse they will get for successful performance, but also what they will forfeit if they screw up?

Sounds good. And perhaps they should do something about the interest and profit rates as well.

What do you mean?

Well, the widening income gap between the rich and the poor — isn’t that caused at least in part by such practices as the interest rates people earn for large deposits as opposed to the measly rates you get for a little savings passbook where small-income earners are encouraged to park the remainder of their weekly paycheck (if they even have a job)? What more deserving ‘hard work’ or inventiveness or intelligence is involved in earning a much higher intererest rate for the big sum somebody inherited from his rich real-estate bubble uncle? I say there should be some automatic regulating device put in place as a diminishing marginal profit and interest rate — the higher the amounts involved, the lower the rate. Or some mechanism by which even small saving account holders get cut in on the overall earnings of the bank, like a dividend, really, if the bank does well in the market.

You think that will encourage people to save and invest more? Perhaps it might help.

Yes, I think so. But what it really would do — if ‘we the people’ really do want some such reforms, they should be willing to switch their investments and loan activities to such institutions, voluntarily. And wouldn’t you think that could in the long run might nudge the entire industry into more wholesome habits — rather than draconian regulations from above?

You might have a point there — especially since people these days don’t seem to trust any regulators any more than the folks they are supposed to regulate. So when are you going to run for office?

Me? A dam furriner? Abbé Boulah!…


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