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Obama plan to limit the size of banks - report
US President Barack Obama will tonight propose new limits on the size of US banks after spending billions of tax-payer dollars to bail out "too-big-to-fail'' firms, a senior official says.Throttling back the Malefactors of Great Wealth? Busting the money trusts? Finally something I can agree with... The measures would place sweeping new restrictions on a sector seen as responsible for sparking the largest recession since the Great Depression of the 1930s. Oh. Wait a minute. Seems like during the Great Depression of the 1930s there were a load of restrictions put on the banks. Whatever happened to them? "A couple of months ago the President began discussing with his economic team the need to include in financial reform more specific and stronger provisions to limit the size and scope of financial institutions'' the official said. If it's actually doing away with single points of failure it's an actual good idea. My suspicion is that it's not that simple... The proposals aim "to cut down on excessive risk taking'' among the largest banks, after crises at a handful of the largest firms threatened to choke the flow of cash to the US economy. That statement kinda confirms my suspicion. Risk taking is what makes institutions thrive. Being over-conservative makes them hidebound. As Potemkin once said: "That which ceases to grow begins to rot." The trick is to have enough competition going so that when one bunch takes the wrong kind of risk it doesn't drag the entire country with it into oblivion. ''The President will announce a series of measures that address size and scope'' of the institutions the official said. That'll likely be tricky, but it could be something as simple is enforcing existing antitrust laws. Mr Obama's first year in office was dominated by efforts to rescue banks that were exposed to massive loses on the sub-prime mortgage market. Large contributing banks, in fact... The official, who asked not to be named, said the new measures would limit banks' ability to use their own cash to buy such financial instruments, so-called proprietary trading. "The proposal will include size and complexity limits specifically on proprietary trading,'' the source said. They'll come up with new instruments that skirt the regs. It's happened over and over again. Makes a lot more sense to impose restrictions on them gobbling each other up. Facing widespread voter anger over state take-overs of the troubled firms, Mr Obama earlier this month proposed a tax on big banks and warned the banking industry not to block or water down his planned regulatory reforms. "It is both in the country's interests and ultimately in the financial industry's interest to have updated rules of the road to prevent abuse and excess.'' It'd be more in the country's interest to have a network of strong regionally based banks competing with each other, a function that's more and more being left to credit unions. Without strict enforcement of some pretty stringent liquidity requirements and anti-milking provisions we're going to see the banking industry continue grabbing the easy money. The new measures will have to be approved by Congress before becoming law. Posted by: tipper 2010-01-21 |
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