How Did the Banks Get So Weak, Anyway?

Written by Annie Sartor

Topics: Coal, Finance

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Senator Carter Glass (D—Va.) and Congressman Henry B. Steagall (D—Ala.). Image via Wikipedia.

Senator Carter Glass (D—Va.) and Congressman Henry B. Steagall (D—Ala.). Image via Wikipedia.

A great article from Forbes appeared in my Google alerts last week and I had to share.

The article begins as yet another article describing the sad state of affairs at big US banks, namely Bank of America and Citi. The article goes on, however, to give a refreshingly short and simple explanation of how the banks got to the terrible position we find them in today:

Should either Bank of America or Citigroup fail, there will no doubt be much finger pointing. But, rather than ask who caused it, we should be asking what caused it. In 2001, the great complaint from US banks was that the European and Asia banks had competitive advantages over US banks in that they could engage in retail banking, commercial banking, investment banking, brokerage, insurance, hedge funds, private equity, and the like. Whereas, the Glass-Steagall Act unfairly limited them to retail and commercial banking.

Mama always said to be careful of what you ask for because you just might get it. The lack of a Glass-Steagall Act in Europe has led European banks to wobble under the weight of their underwriting of European government debt and other investment banking challenges. US banks got just what they asked for.

And, as we all know all to well, less regulation for the banks has meant a much less stable industry that almost took down the entire global economy. In this recession-weary country, we are all still feeling the consequences of big bank wobbles, stumbles and crashes.

What this article doesn’t address, though, is how the banks can take on a MUCH more responsible role in the world economy. Hopefully questions like the one that RAN asked BoA’s CEO Brian Moynihan on Monday can help lead the banks toward more responsible investing that will be better for the economy, and the planet.

1 Comment For This Post I'd Love to Hear Yours!

  1. Anonymous says:

    The big banks are dead meat that should have been allowed to fail. It takes over a week to transfer money between accounts in the same branch. They are issuing warning letters (such as if you use an online vendor, heavens, it must be suspicious because their fellow weasels won’t find work) and fees inconsistently and cluelessly all over again. Their average staff is at least twenty IQ points lower than they have any right to be. Don’t blame them entirely, they have been bludgeoned endlessly by regulators, they are clueless. They scurry about with mindless business trying to stay alive while pretending to work. Universal banking should only have been allowed if they started from scratch, not by merger. These guys are clueless as to how to integrate these things, because they have so many weird pieces which will never fit together. If you employ anyone who used to work at a big bank, you should get fired. They would drown you in penalties just because someone got sick and couldn’t pay – it is irrational how they think they will make it up in short term freak fees if they make you go under. Ibrahimic (not just Islamic) finance is the future – now they call it debt equity convertability.

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