US President Barack Obama has called on fat cat bankers to do more to help the US through an economic recovery. What this means in regular-folk speak is that he wants banks to boost lending and adhere to a string of regulatory changes that need to be made to make the US banking system a less-risky industry.
Boosting Lending Is Wrong
One of the arguments that the President has is that by boosting lending, the banks can actually stimulate spending. What a backwards concept, one that the banks have hopefully learned from after this last recession... actually, is this last recession even over? The point is that the banks have just barely stepped foot out of their close-call with failure, who wants them to take on the same risks that put trillions of taxpayer dollar into bonus programs that should never have been paid in the first place?
You do not stimulate an economy through superficial means, and extending un-worthy credit certainly qualifies as superficial. By keeping lending tight, the banks might actually be able to promote the exact drug that the government should pushing - personal savings and debt reduction.
Tighter Regulation Is a Good Idea
I agree that tighter regulation can actually help the US banking system avoid the type of systemic risk (okay, systemic failure is more appropriate) that the unregulated banks threatened to cause back in 2007 and 2008. But with more regulation comes more government intervention and it is clear that Government should not interfere with free enterprise, including banking (and including auto manufacturing too, but that's not for this blog). So there is a reason why banks are afraid of regulation; if Government had handled the situation better in the first place (and maybe avoided some name calling; fat cats don't like to be called fat, they are sensitive little pussies and everyone knows that, why doesn't Obama?) then maybe convincing these insecure risk-takers to allow reform and regulation would be a much easier proposition.
One Possible Solution
The banks knew, right from the start, that Politicians are not Business People. So they did what they did best and they took the money, agreed to the political demands knowing full well that the pain would be short-term. What the Government can do to promote adherence with their regulatory hopes and proposals is use something that Governments use all too well. That is (gasp) TAXES.
That's right, the Government can tax non-compliant banks or corporations that pose added risks to the economy. It's almost inevitable, isn't it? I mean, doesn't the Government have its own debt to repay to Mr. China?
So here's the deal. Banks that do not fall in line with the proposed regulations will get to pay the added taxes that might be required, at some later date, to bail them out again. Simple.
And here's a Bonus for those extra-risky financial institutions who take on enough risk to potentially cause financial Armageddon. Pay EVEN MORE taxes.
Okay, so the skeptics are wondering: How do you measure risk? How can you look at these banks and say Bank 1 is riskier than Bank 2?
Duh; the Federal Reserve is arguably the smartest financial think-tank on the planet (Kudos to you, Bernanke). Set up another group of people who analyze the risks that these banks pose to the economic stability of the country and, ultimately, the world and tax the (censored) out of them if they fail or refuse to adhere to the rules that banks everywhere else in the world adhere to.
Simple, simple, simple... and I don't even get a cent for that advice!
