Financial Reform

Nations around the globe are still feeling the impact of the financial crisis that resulted from institutional and individual greed. To limit the collapse of the financial system and the impact of the damage governments pour billions into the financial system.

Leaders of financial and real estate institutions created innovated, confusing and misleading products to make billions of dollars and fleecing tens of millions of people in the process. Financial reform has been proposed but the leaders of the financial industry are resisting saying that reform is not needed and reforms will hinder their ability to generate a maximum return for their shareholders.

Various politicians, mainly staunch conservatives, are lining up to resist reform and allow only cosmetic changes be made. While it may be hard to believe there are some who are advocating for greater deregulation and blaming what regulations remain in place as the cause of our economic problems.

While various factors ranging from subprime mortgages to inflated housing prices to derivatives to deregulation of the financial industry are behind the collapse let’s be clear that the primary underlying factor was greed. Greed will always exist, and any claim that the financial industry will not repeat the same mistakes naïve thinking. Deregulation removed many of the regulations that came out of lessons learned from the Great Depression and low and behold the financial industry repeated several of the same mistakes that created the Great Depression.

When a firm has become too large to fail, the country has a problem. When a bank can hold my bank account, my loans, sell insurance, be engaged in hedge fund trading, and other highly speculative instruments, the bank a bank in name only. No firm should be too large to fail. A firm like AIG that gets into difficulty should be closed with the profitable segment/accounts sold off/liquidated by the government, and shareholder equity lost.

Banks that hold my loans and accounts should have a higher level of accountability than an investment back. This may mean that a bank would be smaller than some of the existing megabanks.

Serious financial reform is necessary. If meaning reform fails, we need to watch our pockets like a hawk and view with askance anything our financial institutions put out as claims and promises.