Tuesday, September 20, 2011

Banks To Big To Fail & Wall Street

The federal government, under both President George W Bush and Socialist President Obama, forced banks that were already to big to become even bigger through the acquisition of various failing financial institutions.   Bank of America, in particular, acquired both Merrill Lynch, one of the largest brokerage houses in the world and Countrywide Mortgage, formerly the largest mortgage company in the world.   Merrill Lynch has rebounded and is doing pretty well.  Countrywide, that once originated 1 out of 5 mortgages in the country and with federal government encouragement funded loans for many Americans with poor credit that could not possibly repay those loans, has been a real financial burden for B of A.   In fact, Bank of America is dealing with thousands of foreclosures that were originally Countrywide loans, resulting in major losses for B of A yet to be determined. 

Other major banks are similarly positioned; but perhaps for different reasons.   In fact, Moody's has just downgraded the credit worthiness B of A, Citibank and Wells Fargo because of the losses they face.  Ironically, the Glass Steagall Act, enacted in 1933 during the Depression, which prohibited commercial banks from diversifying into other businesses like investments, was repealed in 1999 during the Clinton years.   It was Bill Clinton that signed the repeal of Glass Steagall, which then allowed banks to get into all kinds of businesses, in addition to normal commercial retail banking.   And, while the federal government has placed more restrictions on banks,  many of the major banks are still involved in investment businesses that perhaps should be prohibited because it was that involvement that contributed to the financial collapse in 2007 - 08 and the Great Depression.   

In addition, Wall Street has become a lot like Las Vegas, with investment companies, some times owned by major banks, betting on just about everything.   So rather than just managing the sale of stocks and bonds based on some rational investment criteria, brokerage houses often participate in betting on what the market is going to do.   In addition, the ability to buy stock on margin, that is borrowing money, distorts the market.   The brainiacs on the East Coast, both in New York City and Washington have made a real mess of things, while at the same time they have personally made millions, if not billions of dollars at the expense of the American people. 

In the mean time, banks are making billions in profit off all these fancy "deals", credit card interest and numerous service charges that are now very typical.   Yet, it is now very difficult to get a mortgage without a substantial down payment and a credit score of 700 or more, which is one of the reasons the real estate market in many cities is in the toilet.   Normally, when rates are as low as 4%, the real estate market should be booming, particularly with prices so low, but many Americans that would buy homes just can't pull together the 20 or 30% down payment banks are requiring.   In fairness, since home prices are continuing to fall because of Obama's destruction of our economy and resulting job losses, banks are scared to death to fund mortgages because home values have not stabilized. 

Normally, this Blogger supports free market capitalism and as little regulation as possible; but it may be that Glass Steagall had it right.  Perhaps, banks should be prohibited from being in investment and other businesses.   And, there is too much financial power concentrated in too few major banks.  This notion of a bank that is to big to fail is a real problem for the American economy.   In a sense, we have a banking monopoly, since just a hand full of companies control the financial well being of our country.   Rather than forcing these major banks to grow even bigger, the federal government should force them to divest themselves of various investment businesses that could be a conflict of interest.  

And, we have to outlaw all the gambling on Wall Street.   Investments should be based on sound financial principles, not Las Vegas style betting, particularly since millions of Americans have money in the stock market through 401's, IRA's and other investments.    These east coast brainaics playing this game are part of the crony capitalism problem we have with companies feeding at the trough, except in this case, these Wall Street characters are often getting rich at the expense of the American people, not in a position to play these complex games. 

We do have to take back out country in 2012 and 2014 by sweeping Socialists, including President Obama out of office.   As part of our work, we need to take a hard look at banks that are to big to fail and Wall Street.   As the President of a global company, I saw first hand that our nation faced the brink of financial disaster in September of 2008.  As a result of my business, I was also exposed to the Countrywide debacle.    We can't let any of that happen again.   This is a very complex issue; but common sense tells me that the concentration of so much power in so few hands is not good for our nation.   Banks that are to big to fail and Wall Street shenanigans cannot be allowed to continue.   It is time that those of us who live and work in the heart land say Enough is Enough. 

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