Now Who Has The Biggest Balls?

There is a lot in the news about the Federal Government controlling, limiting salaries and bonuses of bankers this week. To me this is just so much BS. Yes, these CEOs make far too much money for what they do for their shareholders or for the economy as a whole. But, this is not the problem. This is strictly for the the media and making the average Joe feel like the Federal Government is doing something about these ridiculous pay packages. But, let me just drop this point for now and get into why I think this is just so much BS and eye wash.

One of the big issues through this whole bailout thing has been the words "too big to fail." My question is: why would we tolerate a construction that would be "too big to fail?" For example, would we permit a building to be built knowing that if we put too much weight on the top floor, that the whole building would collapse? No, building codes would ever approve of such a construction. But, weights and measures, elements and compounds, stress and torque are all considered when putting up a tall building. Things that are engineered are a lot easier to see what the final results will be if the math does not hold "water".

The idea of removing commercial and investment banking should be as basic as a stress test for steel, but unfortunately it is a lot easier to show what will happen when the steel is too thin or is made too cheaply. Investment banks need to be separate from commercial banks because the commercial side of the bank does not need the extra stress. The only reason I can think of as to why the bankers want the larger entity is because they get to go it alone on the underwriting of a large loan or bond issue. They can let other firms into their selling group if they need help with distribution, but the underwriting fees go into their pocket, and that is what counts. "Now, who has the biggest balls?", they can sit around and talk about.

Smaller firms in partnership form, that means without the common stock in the hands of the public, but their own balls in the game, is, in my opinion, the way it should be. Then, with proper regulation, transparency and enforcement the chances of another too big to fail is taken off the table. Simple. No, not so simple because the investment bankers want to use your money to gamble with, not theirs.

I realize that most people that read this do not know the difference between a syndicate and a selling group, or a divided from and undivided liability, but that is not important. The problem at hand is constructing a system of firms that provide the service of bringing together lenders and borrowers without them becoming the drama of the story. I know the politics are too great for my ideas to take place, but I thought by at least presenting my ideas, I could lay out for the reader what ball to keep their eyes on. By the way, Florida State played UNC Thursday night on ESPN and won 30 - 27. The Tarheels blew a lead in the second half. They took their eye off the ball too.

Stay tuned.