Banks, Banking and a Wunch of Bankers

Financiers are among the world’s most fervent supporters of the free market, that’s a given. “No government interference!” they demand, “more deregulation!”

Right up until about 2008, when they polarise to “More government interference please” and billions of whatever your local currency is flushed away to stabilise what could have been a total melt-down of the world economy. I don’t think anyone will admit to how close we actually came to an outright failure of the money system.

And do you know what? I think governments were right to bail out the banks. You don’t want to be living in the world where the international economy has had to readjust to not having currency. Dystopian post nuclear apocalypse fiction would be a close simile to life if the banks had been allowed to fail.

We all know what went wrong, how the US had managed to make a mockery of credit ratings, sub-prime mortgages, hedge funds gambling on the same institution’s investment vehicles imminent failure and deregulation to the point where banks were being allowed to over-invest so heavily in derivative markets that it would cost more than their parent nation makes in a year to cover their positions.

Stupid, stupid n00b investor mistakes. Some 75 years ago a certain W.D.Gann wrote a fairly simple set of rules by which to protect yourself from over-trading. They include things like: never trade with money you need, never put more than a fraction of your trading capital in one place, always keep a close stop-loss that follows you up and protects gains as well as minimises losses. All pretty straightforward and, you would think, rudimentary rules that surely nobody would be stupid enough to not follow.

Apparently not. Apparently, the world’s greatest and largest financial institutions don’t bother learning such things. They are much too clever for common sense.

And yet I still believe that it was right for governments to bail out their banks to keep money worth more than the paper it’s printed on.

Right. That’s about enough of me being caring and understanding. What’s next? How do we prevent this from ever happening again? For prevent it we must if it was important enough to have saved once.

Let’s look at where the danger was, locate the single point of failure and bolster the resilience of the system.

The Bank.

The bank always wins because without it there is nothing. “Too big to be allowed to fail” was the reason we had to save them. Bigger than the government? Let’s hope not. Now that our hard-earned has been spent on saving the banks and our local economies lie in ruins, it is time that our governments stepped in and protected us from it happening again.

If a company becomes too large, it is told it has to break up into its component parts. So let’s see a decree whereby high street banks are no longer allowed to sell mortgages, insurance, pensions, investments other than savings accounts. Let’s have a return of the building society, life and general insurance companies, pension funds, unit trusts under different competing companies, investment banking removed from the high street brands.

I’m all for bailing the banks out so long as there are repercussions, some sort of punishment that says “you won’t be doing that again you irresponsible bastards”.

What I cannot bear to see is everything carrying on as it was before the crisis started, before the crisis has even ended.