Thanks for Making Things Worse, Congress!

I feel like I give Congress a lot of credit when it comes to dilly-dallying, lobbyist-kowtowing, and just general ineffectiveness. But this past week, the folks in the Senate took governing idiocy to a whole new level.

Late last month, fellow Fools Morgan Housel and Ilan Moscovitz highlighted a great financial reform amendment dubbed the SAFE Banking Act. In short, the amendment was designed to end "too big to fail" by not letting banks grow beyond a certain reasonable size.

That amendment was voted down by an impressive 61-33 vote on Thursday, with 27 Democrats voting against the bill. Included in the Democrat naysaying was Senate reform bill architect Chris Dodd. Glad to see he's on board for real reform after all.

But wait, it gets better! The prior day, the Senate overwhelmingly approved two other amendments to the reform package. One explicitly bars the use of taxpayer funds to rescue failing financial institutions, while the other does away with the $50 billion industry-supported cleanup fund for unwinding a failing financial hulk.

So essentially, what they've done is given giant financial institutions like Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) the green light to keep right on being too big to fail, while severing the firehoses that could have doused financial bonfires.

I held little hope that we'd see true reform. But Congress has really outdone itself this time, actually managing to make the financial system even more dangerous.

I get it, I get it
I know Americans are mad about the fact that firms such as Goldman Sachs (NYSE: GS  ) -- which apparently has been doing some smarmy, if not downright illegal business -- were handed taxpayer money during the financial crisis. And I also understand that the reaction for many people is, "We should have just let them fail."

But the reality's not quite that simple. Take a look at some of the liabilities on the big banks' most recent balance sheets.

Company

Deposits

Federal Funds, Repos, and Other Short-Term Borrowing

Payables

Trading Liabilities

Long Term Debt

Equity

Citigroup (NYSE: C  )

$828 billion

$305 billion

$55 billion

$143 billion

$439 billion

$154 billion

Goldman Sachs

$39 billion

$156 billion

$185 billion

$129 billion

$234 billion

$71 billion

Morgan Stanley (NYSE: MS  )

$64 billion

$219 billion

$136 billion

$143 billion

$189 billion

$55 billion

Bank of America

$976 billion

$356 billion

$136 billion

$130 billion

$512 billion

$230 billion

JPMorgan

$925 billion

$345 billion

$153 billion

$141 billion

$405 billion

$165 billion

Source: Company filings. All liabilities may not be included.

When most people think about letting a bank fail, they probably envision the shareholders in that bank suddenly clutching worthless share certificates. And that's A-OK. However, looking at the rightmost column of the table, we can see that equity accounts for a rather small portion of the banks' total financing. If we're really talking about one of these banks failing, we'd likely see the equity demolished, while losses start to eat into other liabilities.

Those other liabilities are spread throughout the financial system in a crazy mess of agreements with mutual funds, pension funds, other big banks, smaller banks, insurance companies, and more. If any one of these big banks fail, banks and financial companies throughout the system may suddenly take big hits to their capital base. And if tough economic times already had them on shaky footing, you can see how one major failure could lock up the entire system.

The poet John Donne said, "No man is an island." The same holds true for the major financial firms. Given their size and the nature of their business, none of them would be able to fail without sending huge shockwaves through the rest of the system.

Absolute nonsense
If we want to keep having massive financial institutions, we need some way to stave off systemic meltdown if one of them fails. On the other hand, if we don't want to end up bailing out failing financial institutions, we have to make sure that they're all small enough that the system can easily absorb their failure. We can't have it both ways.

As it stands, it's easy to see what will happen here. Congress will try to please both constituents (with no taxpayer bailouts) and lobbyists (with no size caps) and put all of this nonsense into law. Then, when we end up playing the same financial meltdown record all over again -- and we will -- somebody, somewhere in government will find some loophole or claim some overriding power to allow them to use taxpayer funds after all.

"We had no choice," they'll whine. "The entire system was at risk because the failing bank was just too big."

But while the SAFE Banking Act may be sleeping with the fishes now, the final chapter has yet to be written on financial reform. That means there's still time to get on the horn with your Senators and tell them how important it is that we put an end to "too big to fail."

Once you've done that, head down to the comments section below and share your thoughts on financial reform.

Wall Street tends to like things that are new, flashy, and risky -- and to forget about classic wealth-building wisdom.

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.


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  • Report this Comment On May 10, 2010, at 1:08 PM, melbyt wrote:

    Could you explain more about how a big bank failing would be so bad? I understand that the equity holders would get crushed first if the bank failed and that's the risk they take with investing. But don't lenders also take risk with the long term debt they provide to those banks? Shouldn't they be allowed to lose their investment with a bank if it should fail? The deposits are FDIC insured so those aren't at as big of a risk. The companies they have payables for will get shorted as well, but that is a cost of doing business. I'm not familiar enough with the other two categories to know how that would shake out. It just seems like capitalism should take its course and everyone learn a lesson in investing.

  • Report this Comment On May 10, 2010, at 1:58 PM, PhulishMortal wrote:

    Where can I get a good roll-call on how Senators voted on the SAFE act?

  • Report this Comment On May 10, 2010, at 2:32 PM, rb525 wrote:

    @PhulishMortal http://www.senate.gov/legislative/LIS/roll_call_lists/roll_c...

    There is the roll call sorted alphabetically.

  • Report this Comment On May 10, 2010, at 2:38 PM, PhulishMortal wrote:

    Thanks, rb525. It turns out I was looking for the wrong bill. Your link was a lifesaver.

  • Report this Comment On May 10, 2010, at 2:44 PM, militauro wrote:

    I forgot where I read that a lobbyist was leaving his post to run for office again. Anyway, with so many lobbyists and bankers getting more and more seats in office and throw more and more money, this is bound to happen. It's rigged and seems impossible to fix.

  • Report this Comment On May 10, 2010, at 2:44 PM, militauro wrote:

    I forgot where I read that a lobbyist was leaving his post to run for office again. Anyway, with so many lobbyists and bankers getting more and more seats in office and throw more and more money, this is bound to happen. It's rigged and seems impossible to fix.

  • Report this Comment On May 10, 2010, at 2:49 PM, RRGY2K wrote:

    Still worse, the failure of Citi, B of A, or JP Morgan would take down many of the rest of us who rely on them for mortgages for our homebuyers, credit cards, home equity lines of credit, and small business loans. When the banks are sick, so are the people depending on them who give us jobs and the people who buy things from the companies we work for (in other words, everyone).

    Better that we keep real banks healthy by getting them out of hedge funds, stock market trading manipulations, credit default swaps and all those other racy businesses.

  • Report this Comment On May 10, 2010, at 3:03 PM, TMFKopp wrote:

    @melbyt

    You are absolutely right, just as equity holders put their money at risk, so do lenders and counterparties.

    However, banking is different than other industries because it's precisely the lenders and counterparties that are getting hurt that are also expected to pick up the slack left behind by the failed bank.

    Unfortunately, those lenders and counterparties have now taken a hit to their capital base thanks to that failed bank so it becomes more difficult to expand their presence and pick up that extra market share. Worse, if any of them were particularly exposed, they may even have to cut back on current lending. Worse still, if whatever made the first bank fail spooks folks at places like insurance companies and mutual funds (who buy securitizations, provide repo funding, etc), then they may curtail purchases, ask for more collateral for lending, or back away from the table completely.

    One way to think about it is like an old-school string of Christmas tree lights. When it comes to the big banks, when you pull one out of the system you risk having a whole bunch of others go dark.

    In that way it's very different from other industries. Think about fast food for instance. If McDonald's suddenly went under for some reason its equity holders and lenders would be hurt, and some of its suppliers may take a hit as well. But how much would that impact Burger King or Wendy's? They'd probably be jumping for joy because they'd get a lot of that McDonald's business coming their way. If Citigroup goes down though, many of the other big banks (in the U.S. and around the world) would feel the blowback.

    And that's not to mention that a cutback in the fast food industry (though it would make a bunch of people unemployed) wouldn't have huge implications for the overall economy. A freeze in the banking industry, on the other hand, impacts pretty much every part of the economy.

    Matt

  • Report this Comment On May 10, 2010, at 3:21 PM, TMFKopp wrote:

    @melbyt

    Another thing to think about is the FDIC issue. Again, you're correct that the FDIC insures much of the deposit base but... well, the FDIC has to insure much of the deposit base. If one of the major deposit-holding banks failed that would be a MASSIVE strain on the FDIC and if it happened during a time of general banking stress it's likely the FDIC and its insurance fund will have already been put on thin ice.

    This would have a couple very notable consequences:

    1) To try and replenish its insurance fund, the FDIC would have to levy higher fees on all banks and potentially accelerate future fees. The FDIC is doing this now and if you look at any of the smaller banks' recent P&L's you can see that this is having a major impact on their bottom line.

    2) The FDIC may or may not be able to cover such a massive failure and may end up seeking assistance from... oh yes, Uncle Sam. This gives us a six-degrees-to-Kevin-Bacon style taxpayer bailout of a big bank -- exactly what Congress is supposedly trying to avoid.

    Matt

  • Report this Comment On May 10, 2010, at 3:25 PM, TMFKopp wrote:

    @PhulishMortal et al

    An interesting note on the voting... Richard Shelby logged one of the "yea" votes.

    Matt Taibbi @ Rolling Stone, who doesn't hold back when expressing how he feels about things, reacted this way:

    "In a wittily insulting footnote to this massacre, Alabaman Obfuscation King Richard Shelby, the guy who has been leading the transparently lobbyist-driven and shockingly (even by DC standards) cynical Republican filibusters of this bill, actually voted for the Brown/Kaufman amendment. I have no idea if this was Shelby’s idea of a joke or what, but somehow seeing this bloated old hack cast a quixotic Yea for this urgently necessary measure while 27 Democrats slithered back into the lobbyist camp to cast Nay votes was the most obnoxious part of this whole sordid affair."

    Matt

  • Report this Comment On May 10, 2010, at 4:10 PM, majordm wrote:

    somebody call the whaaaambulance.

  • Report this Comment On May 10, 2010, at 4:48 PM, yosemitebean wrote:

    Let them fail. Thats natures way of weeding out the bad ones.....and birds of a feather normally flock together anyways. Maybe, we can get lucky and get several bad birds with every failure until only the good birds exist to better the industry. Just a thought.

  • Report this Comment On May 10, 2010, at 5:23 PM, plange01 wrote:

    congress is only doing what they were paid off for...

  • Report this Comment On May 10, 2010, at 5:24 PM, TMFKopp wrote:

    @yosemitebean

    That seems to be a pretty common attitude. On the one hand, yeah, you could just let cascading failures hopefully clean out the system of the bad players. However, the country would endure a massive recession (likely depression) as a result of the severe contraction of liquidity and lending capacity. That recession would leave a lot of people out of work for a long time and destroy a bunch of legitimate economic capacity.

    So would "just letting them fail" do the job? Yeah, but to continue with the cliches, there's more than one way to skin a cat and I'm not sure that the nuclear option is the best way to go here.

    Matt

  • Report this Comment On May 10, 2010, at 5:36 PM, nwtracker wrote:

    For a whipcount of the bill see;

    http://www.anewwayforward.org/blogs/2010/05/05/whip-the-sena...

    Now for all the others thought...tell me why we need such big banks as these? If the economy of scale ends at approximately 100B and JPM has 20 times that. What's the point?

    I consider any large pool of money to be leaky. The larger the pool, the nastier the dark-slushy-funds environment happens.

    I for one do not want a more powerful corporate government. Nor more powerful lobbyists. The more the banking system is held to smaller pools (banks), the more stable it is.

  • Report this Comment On May 10, 2010, at 7:36 PM, yosemitebean wrote:

    To: Matt - You said, "That recession would leave a lot of people out of work for a long time and destroy a bunch of legitimate economic capacity." We already have a lot of people out of work, who will be out of work for a very long time, and our economic capacity is not looking real good right now either. You asked, "So would "just letting them fail" do the job? Of course not, but it would help. You also said, "Yeah, but to continue with the cliches, there's more than one way to skin a cat and I'm not sure that the nuclear option is the best way to go here. Who said anything about skinning a cat? Or, the nuclear option? I was merely stating how nature does it. You are talking about how man does it.

  • Report this Comment On May 10, 2010, at 8:30 PM, TMFKopp wrote:

    @yosemitebean

    We absolutely do have a lot of unemployment and slack capacity right now, but what do you think it would look like if borrowing capacity were drastically slashed?

    "I was merely stating how nature does it. You are talking about how man does it."

    This is one of the core problems with the "just let them fail" argument right now. Proponents assume that there's some sort of natural law that will dictate what happens, or that the invisible hand will pull off some magic to make everything move along smoothly.

    I have issues with putting too much faith in the power of the invisible hand (which, as far as an attribution to Adam Smith, is way overblown). But even that aside, the U.S. banking system is so far from a free market that it's crazy to think that normal market forces are what will save the day, particularly when it comes to the financial system juggernauts.

    Of course some folks want to argue that the whole U.S. system is rotten from the core. But talking about tearing down the entire financial system is another discussion entirely.

    In the end, I actually do agree with the sentiment of "just let them fail." That's what should happen if you mismanage your business, whether financial or otherwise. But we need regulators to put a framework in place that doesn't allow banks to grow to such a massive size that failure is a risk to the entire system.

    As soon as they do that (can we get a SAFE v2.0?), then I'll be right there with everyone else yelling "just let them fail!"

    Matt

  • Report this Comment On May 10, 2010, at 8:38 PM, MyDonkey wrote:

    Too-Big-To-Fail is alive and well, as the Ayes (33) lost to the Nays (61) in a vote on the Brown amendment:

    http://www.opencongress.org/vote/2010/s/136

    The Cat has once again refused to wear a bell, because doing so would not be in the Cat's best interest. Writing and talking about it does nothing. Next time you write to your representatives, maybe include a check for 10 or 20K in an attempt to buy their vote. But remember, you'd be bidding against lobbyists giving hundreds of thousands, so don't get your hopes up too high.

    If we Mice were serious about trying to influence the Cat's behavior, we would organize strikes and take to the streets in protests all over the country. In short, start a revolution.

    But apparently we're not even close to becoming serious. The vast majority of Americans today are blissful entertainment addicts who spend most of their leisure time under the spell of computers and television. We would much rather watch "reality" shows on TV than try to deal with the real world outside our cozy livingrooms.

    An extended power outage would certainly change that. With our "drug supply" cut off, we'd become helpless babbling idiots within days. No electricity to run lights, appliances, and motors for our furnaces & water pumps, and when diesel/gasoline runs out in a few days, no fuel for portable generators, and no fuel for trucks to bring food & water and other necessities. I wish it weren't the case but I honestly believe it's going to take some drastic event (such as a lengthy blackout) to get our full attention.

  • Report this Comment On May 10, 2010, at 9:48 PM, mgrondin wrote:

    We are already in the middle of a depression. Lookup John Williams and have a look at his indicators.

    I watched Michael Moore : Capitalist a love story.

    Don't get me wrong I am a capitalist. But I think everyone should watch this movie.Seriously It made me sick to my stomach. Make sure to watch how the Goldman CEO spoke to Reagan.

    There is a limit to what even the most uneducated person will believe. And when the last one understands that something is dead wrong you end up with a revolution on your hand.

  • Report this Comment On May 10, 2010, at 10:05 PM, blesto wrote:

    Sent a note to my Senator.

    Hope I get a reply.

  • Report this Comment On May 10, 2010, at 10:28 PM, yosemitebean wrote:

    To My Donkey - You said, "An extended power outage would certainly change that. With our "drug supply" cut off, we'd become helpless idiots within days." When you said, "We'd.become helpless idiots", if you meant we, as in you and me, that would be an incorrect assumption on your part. It would take a lot longer than a few days, for me to resort to babbling. Thank you.

  • Report this Comment On May 10, 2010, at 10:43 PM, yosemitebean wrote:

    Why do people keep trying to put words in my mouth. To: ImOttaHere2008 - You said, "Isn't that treason? ;-) You're basically saying the US should be done away with." Maybe you should reread all of the posts above again. Where did ANYONE say anything that even slightly resembles doing away with the U.S.?

  • Report this Comment On May 10, 2010, at 10:59 PM, krumb31 wrote:

    Matt,

    You seem to believe that Congress actually runs things.

    Market crash during the day. Vote down to big to fail and Fed audit later in the day. The money runs the country.

  • Report this Comment On May 11, 2010, at 1:06 AM, phillman5 wrote:

    Matt,

    A better example than McDonald's going out of business would be Ford, Chrysler, or GM going out of business. Many part suppliers, like drive shafts, depend on all three, so if one of the big three went away it would hurt some of the suppliers and like wise hurt the other two. This is probably a better example of what might happen if Citi were to go under, how it would affect JP Morgan.

  • Report this Comment On May 11, 2010, at 4:15 AM, thidmark wrote:

    The morons in Congress helped create the problem. It's not surprising they can't or won't fix it.

  • Report this Comment On May 11, 2010, at 8:58 AM, NDimensionalDino wrote:

    When a financial services company of any size fails, the real damage is to the companies that they service. They must then scramble to find alternate lines of credit and replacement services. Some never do find a replacement for vital services before going under.

    So what we need is a government institution that takes over and maintains these services while they deal with the bankruptcy. This prevents the worst of the economic impact while eliminating the whole concept of "too big to fail".

  • Report this Comment On May 11, 2010, at 9:00 AM, BMFPitt wrote:

    "One explicitly bars the use of taxpayer funds to rescue failing financial institutions"

    I don't for one second believe Congress to be capable of self-control with taxpayer money if a big bank or a big "bank" is failing.

    Which is why is should be a federal crime punishable by death to ask Congress for a bailout. It's the only way to protect taxpayer money.

  • Report this Comment On May 11, 2010, at 9:01 AM, Keal7 wrote:

    You also said, "Yeah, but to continue with the cliches, there's more than one way to skin a cat and I'm not sure that the nuclear option is the best way to go here. Who said anything about skinning a cat? Or, the nuclear option?

    (Means that there are many ways to arrive at good companies and getting rid of bad ones as you wished - skinning a cat. And crashing the entire financial system and wrecking carnage on the economy and causing mass suffering in the short term could get us there - but its like a nuclear option.

    Why do people keep trying to put words in my mouth. To: ImOttaHere2008 - You said, "Isn't that treason? ;-) You're basically saying the US should be done away with." Maybe you should reread all of the posts above again. Where did ANYONE say anything that even slightly resembles doing away with the U.S.?

    (Its a tongue in cheek way of saying the US itself is like too big to fail to the rest of the world's economy - US failure will plunge the world into a depression - although in fairness the cut off size for country too big to fail seems to be barely bigger than Greece)

    You seem to be missing a sarcasm bone. Or very slow in the language dept and you dont realize it. Tea partier? But its amusing reading whole thread - and some very insightful ones such as the first. Maybe overly simple minds should not try to partake in these conversations that attempts to solve these complex problems though.

  • Report this Comment On May 11, 2010, at 9:29 AM, varney wrote:

    Perhaps if the government would stop forcing banks into making bad loans, we wouldn't have to worry about another crisis.

  • Report this Comment On May 11, 2010, at 9:36 AM, SMUCoxMBA wrote:

    Unfortunately, the banks, particularly the large ones have very good lobbies. Smaller banks that operate only in Texas, for example, are regulated by the state and have to open their books on an annual basis to the state bank examiners. B or A and it's ilk operate under a "national" bank charter that means that the states are not allowed to regulate them. And since there is no federal agency charged with oversight of them, they can do as they please. If you want banking reform, break em back up and make em subject to the states again.

  • Report this Comment On May 11, 2010, at 10:46 AM, MrArbitrage wrote:

    It was friggin HILLARIOUS to see Gold down yesterday -after the European BAILOUT of all things! There truly is a VAST fund of stupidity out there. I mean, dear God, Gold DOWN on another Trillion dollar BAILOUT!!!! LOL LOL.

    I have spent the past decade writing contemptuously about the stupidity of the financial markets and the majority of lemmings who participate in them at www.TableOfWisdom.com - and this bailout is just another monumental achievement in human imbecility. I don't know who is more worthy of ridicule, the criminals who promulgate these bailouts guaranteed to do nothing but WORSEN an already devastating situation -or- those who actually shorted gold thinking that this latest trillion dollar bailout would -mitigate- inflation!

    I am absolutely in awe of the level of incompetence. People in the media who are not outright lambasting this stupidity are themselves among the lemmings who make up the majority.

  • Report this Comment On May 11, 2010, at 11:50 AM, nwtracker wrote:

    Did anyone notice that the market took a dive right when congress had a whip vote on the safe banking act? The vote was at 2:30pm ET Thurs.. What time was the "Fat Finger"?

    As for gold, the price manipulations and issuing contracts for more than what is deliverable is coming to a breaking point. I am a buyer of gold-in-hand, and not one of those gold-warehouse-company equities.

    I've been busting my Senators chops for several months, and they voted for what I wanted. I KNOW that I'm not the only one doing it. Congress needs to HEAR FROM US!

  • Report this Comment On May 11, 2010, at 3:08 PM, jpanspac wrote:

    Getting rid of the cleanup fund was actually a good idea. Congress would just have raided it to pay for more pork, just like they've been raiding the Social Security fund. The there would have been nothing but IOUs available to clean up failing banks.

  • Report this Comment On May 11, 2010, at 5:03 PM, yosemitebean wrote:

    To: Keal7 - Thanks for enlightening me. "You seem to be missing a sarcasm bone." I can be as sarcastic as the next person, but I choose not to be. "Or very slow in the language dept and you dont realize it." Like I said, I would rather not be sarcastic, so I choose to speak English (as it was taught). "Tea partier?" No. "But its amusing reading whole thread". I am glad that you find it amusing. Maybe if you laughed more you would be less sarcastic. "and some very insightful ones such as the first". Thank you. "Maybe overly simple minds should not try to partake in these conversations that attempts to solve these complex problems though". Maybe overly sarcastic minds should not partake in these conversations. I have yet to see sarcasm solve a complex problem, or ANY problem for that matter. Have a nice day.

  • Report this Comment On May 12, 2010, at 3:05 PM, DrJRiddle wrote:

    It seems to me like maybe instead of too big to fail, we should worry more about "too ingrained to fail". Big and healthy should be ok. Not having any acheivable goals is a death warrant. But finding a way to have some less interdependance might be the way to go.

  • Report this Comment On May 14, 2010, at 12:23 PM, Zebra365 wrote:

    Greece was too big to fail.

    Rome was to big to fail.

    Spain was too big to fail.

    France was too big to fail.

    England was too big to fail.

    The USA is too big to fail.

    So it goes.

    Read Bill Bonner's "Empire of Debt" and get some perspective. The US Government is doing what the governments of all failed empires eventually do - borrow too much, spend too much and meddle in their neighbors' business too much. Then they try to put lipstick on a pig by devaluing their currency.

    For the past three years I dread the weekends. That is when governments get together and announce incredibly stupid ideas to "fix" problems. The current fad seems to be that the cure for too much debt is - more debt.

    Three metals are important to your future in America; gold, silver and lead. Become familiar with them all.

    Soon.

  • Report this Comment On May 14, 2010, at 12:28 PM, vixter50 wrote:

    I've read all the comments...and agree with most. But a question...how many have actually written to their congressmen, their senators, their president or anyone else in their local governments? And how many of you voted in your local election on May 4th? I don't know about any of you...but I'm scared. I feel like David against Goliath. How do we stop them?

  • Report this Comment On May 14, 2010, at 12:30 PM, vixter50 wrote:

    More important...who will help to stop them?

  • Report this Comment On May 14, 2010, at 12:51 PM, rmsteere wrote:

    Well, all the failures in the great depression led Congress to put some checkpoints in place. The "uptick rule" and others. They saw what's obvious to anyone: commercial banking and investment banking are totally different businesses, in fact, are polar opposites. They saw that allowing one bank to do both would lead to both banking excesses and investment excesses. Sure enough, as subsequent Congresses bowed to campaign donations, they whittled away at such reforms. Sure enough, the whole thing came very near to collapsing last year. When I see Congress taking steps to undo that damage I will applaud. Until then, I'll just wait for the next collapse.

  • Report this Comment On May 14, 2010, at 1:07 PM, QTXUSA wrote:

    Remember...November...No Member !

    Term'em.......incumb out !

  • Report this Comment On May 14, 2010, at 3:46 PM, dph192 wrote:

    Regarding "too big" - isn't the problem really misrepresentation of assets? I.e. bundled debt instruments where the actual basis (collateral, credit rating, risk) was misrepresented (or never looked at). Seems you could have a 'truth in trading' rule that makes you provide the numbers (e.g. the number of interest-only loans in a mortgage pool), then a fine them if they make a mistake, jail them if they intentionally mislead.

    Regarding "bailouts" my inclination would be to let any given bank fail, then immediately auction the assets and apportion the gov't bailout to those banks healthy enough to pick up the slack. Thus a more conservative bank could buy the bad mortgages at 50% and get a bonus of a low interest federal loan to boot. Let's invest in the winners, not the losers.

  • Report this Comment On May 15, 2010, at 1:12 AM, pernfam wrote:

    I am so fed up with Congress. They are in the pocket of the lobbyists and no longer are after the greater good. They go from one election cycle to the next and do whatever it takes to get campaign funds. They may call it political contributions. I call it a bribe.

  • Report this Comment On May 15, 2010, at 9:08 AM, foolme2ice wrote:

    Never forget... the best way to make your voice heard in this country is with the dollars you spend....and

  • Report this Comment On May 15, 2010, at 9:26 AM, foolme2ice wrote:

    Sorry, this is my first post. To finish my last ...... and WHERE you spend. I have cancelled my credit cards with B of A and Citi Bank. Then got a Visa card with my LOCAL credit union. They are like an old world bank. They actually know my name! But don't stop there. TELL EVERYBODY YOU KNOW. If you have investments with the big banks, pull them out and put your money someplace else. There are many other places to invest successfully. I will NOT do business with the devil, no matter what the returns. Call it an 'ideal' or a 'moral' or just good common sense. In this capitalist society it's our money that speaks the loudest not our vote. Too many times we forget to use that voice

  • Report this Comment On May 16, 2010, at 10:24 AM, sfhs wrote:

    I really don't have a lot of knowledge of the American banking system, but it seems to me that you have a long history of banks failing. It seems that reform of the system is a necessity and should be a priority. I am not even aware of how different our Australian banking and regulatory system is, but our banks seemed to hold up very well during the crisis, and it must be a long, long time since a large Australian bank(yes I know they are very small next to U.S. banks, but that does not change the argument much) has failed, if ever? It may be a good exercise to look at the regulatory controls that govern Australian banks for some clues as to why this is the case?

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