Thursday, November 19, 2009
Does President Obama Get it?
The TV on MSNBC is talking this morning about the large banks, and the fact that they are not lending small businesses money, but rather speculating with the TARP money in markets where they can make larger profits without all the trouble and paperwork of lending to small businesses.
If ever there was an argument for a return to the Glass-Steagall Act of the 1930s, this is it. Permitting banks to take advantage of borrowing at the Fed at 0% interest rate, while at the same time investing in markets that pay greater profits if they are right in their bets, or, if they are wrong, the Federal Government picks up the tab, is no way to run a railroad. You don't have to be an Einstein to understand that.
Unfortunately, the situation is now much more complicated by the fact that banks are no longer just banks. This has a lot to do with margins, and that is not so simple. The Federal Government needs to take a few steps back and look at what legislation during the Clinton administration created. The simple answer is that the country needs to go backwards and return to banks lending money to businesses. The whole purpose of banks in the 21st century should be to make credit available to small businesses and individuals. Investment banking should be a separate business, the investment bankers know this, that is why they wanted to get into banking. Banking provides a source of funds to invest and then, with less risk and paperwork, they can then play the markets. The problem is, they are playing the markets with the tax payers money at this point.