Regulators in the US and UK have announced plans to deal
with future too-big-to-fail bank failures by ignoring the systemic problem, and,
instead of resolving what’s really wrong here, intend to run around grabbing individual
corporate scapegoats by the throat, fire senior management, wipe out shareholders’
equity, and carry remaining losses into the public bondholder accounts,
trashing at least part of creditors’ investments too. The Chairman of our Federal Deposit Insurance
Corporation and the Deputy Governor of their Bank of England agree that such a policy
is needed to protect taxpayers, we're told.
In the past, corporate managers have limited their responsibilities
to encompass categories like community, employees, and shareholders. Now a new class, taxpayers, has been added to
the mix, at least for our largest banks, and inserted at the very top of the
list, and a new policy-making team of Government hotshots has elbowed its way
inside those major bank boardrooms to tell directors how to accommodate their
new royalty.
We hate to keep raising the same question time and time
again in these pages, valued subscribers, but WTF, subscribers, just WTF?
Further along in the same announcement, some strategy paper
claims that big banks carry insufficient equity and debt at the holding company
level. What Government intrusion is
going to do about that remains unclear.
It will be interesting to see where return on investment stands now. Without sufficient financial leverage,
commercial banks are flat out unprofitable.
Forcing stricter metrics on balance sheet ratios could chase investors
away.
As for what’s really wrong, we simply turn to history. When bankers take on gigantic risks, they
spread the resulting loans around, sharing potential losses among a large
number of banks throughout the whole system as well as anybody else they can find, like all those now-famous marks over in Iceland last go-around.
Maybe 4 or 5 times a century, the practice backfires, punishing the many
for mistakes of the few, and the industry goes under. From FDR’s time to the day before yesterday,
Government has chosen to save the day in whatever way seems appropriate, acting
responsibly to avoid the otherwise certain total collapse and ensuing global
economic catastrophe.
But, dramatic as that point is, it’s not even our biggest
concern here at The MacDougal Post. What bothers your award-winning team most has nothing to do with history. It’s, what happens next? In the worst of times, bank failures occur en
masse. After Financial Holocaust, Part 2,
destined to implode at an institution near you in the not too distant future, when
the entire world banking system has collapsed under the weight of regulatory
mandate, and cherry-picked shareholders destroyed and their bondholding compadres at least crippled …… once all that’s gone down, where will capital
for the newly reorganized banks come from?
Do bureaucratic hotshots expect to find more suckers lining up to throw
money at the next great global catastrophe of theirs, Financial Holocaust, Part
3? We can think of several banking
industry crises over our lifetime that would’ve shut down the entire civilized
world and Iceland if Government hadn’t stepped in to help. Now that our hotshots are stepping in to
hurt, what kind of investor support can they expect to get, particularly when the piles of remaining bones they'll be offering us come stripped of senior management? I can’t speak for anybody else, but if bureaucrats
are done propping up the banks, then we’re done investing in them. This industry is no place to put one's savings
without some kind of gilt-edged guaranteed safety net teasing you in.
In another age, business biggies got broken up by the anti-monopoly
police, their dissevered pieces wriggling away to take up where the decapitated
godhead left off. Why this isn’t the
solution now is puzzling, to say the least.
Maybe a charade has been set up to become emasculated by banking industry lobbyists
before the actual regulations take effect.
In any event, we can’t wait to see the profomas, hard
numbers indicating just what’s going on with those holding company balance
sheet ratios.
Show us the money, boys.
Even then, it’s unlikely we’ll ever be able to buy a bank stock again. There’s no way this socialist combobulation could
ever hold water, or investment grade status, with us.
