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Sep
30
Solution to financial crisis: make big banks behave more like small ones
Filed Under Sunrise on KGMB9 | 2 Comments
In the first quarter of this year, more than 100 banks with assets over $5 billion had a median return on average equity of 3%. For 7,000 banks with smaller assets, it was 5%.
This is the proof of what I’ve been telling you – Wall Street might not have broken the economy had its big financial houses emulated the natural caution of community banks.
President Obama, who knows more than I do because he’s a banker’s grandson, made the same point in his recent New York speech, but not one major Wall Street CEO attended.
The inferior return on average equity shows that these guys hurt their own companies, and their shareholders, even as they hurt the larger economy.
They weren’t working for the larger economy, of course. But they also weren’t working for their shareholders. They were working for their own bonuses.
It can be argued that, from a market standpoint, this was the right thing for them to do. But since it hurt the nation, the right thing for the nation to do is deter a recurrence.
From the first quarter to the second, the gap between the dumb banks and the wise ones narrowed, but this only proves the former damaged the latter in crashing the system.
I’m not beating a dead horse. I’m beating a live one.
The largest financial institutions are still selling all the risky investments they can find buyers for, and the people doing the actually selling are still compensated in part through lavish bonuses.
Only the straitened circumstances of normally flush investors, caused by last summer’s vaporization of billions in wealth, stay the players from doing again exactly what they did that caused last summer’s meltdown.
The best solution so far seems to be to require derivatives traffickers to report their transactions and keep a cushion of cash based on risk analysis.
In other words, do what banks do when they lend.
Another idea, if I understand it correctly, is to tax such transactions based on an accounting of the risk of the investments going bad and the cost of a bailout if needed.
In both cases, the government would be creating a financial deterrent without actually tying anyone’s hands.
The tax idea probably won’t work. No tax is easy to sell. The big banks, which may or may not be too big to fail but are definitely too big to tangle with lightly, can spend millions on lobbying and advertising to influence your opinion and your congressman’s.
“We don’t think the solution to our nation’s financial problems is another tax!”
“Well, uh, yes, but the tax is in lieu of actually coming right out and telling you morons to stop selling people risky investments.”
No, I don’t think that will work. So we’re back to reporting requirements and cash cushion requirements based very, very closely on what banks do already.
Sep
30
There is a movement in Hollywood to urge prosecutors to back off Roman Polanski, who many years ago drugged, raped and sodomized a 13 year-old girl. I don’t understand it.
“Don’t tell your mother,” he said. “This will be our little secret.”
This isn’t going to be a screed against Hollywood. Most people in Hollywood haven’t signed the petition that’s going around. But I wonder if those who have, read the girl’s testimony.
Her account, which corresponds with the verifiable facts, makes it clear she was intimidated into an encounter she did not wish to have. Polanski admitted it happened.
He fled the country before sentencing because, according to later accounts, he was afraid the judge would fail to honor a plea agreement and lock him up.
Some facts that have been brought up by Polanski’s defenders – the fact that the girl had a boyfriend with whom she had sex – the fact that Polanski was arrested in public when theoretically he might have been apprehended more discreetly – strike me as irrelevant.
How can anyone in Hollywood see Polanski as not being the bad guy? I have a theory about that.
In TV shows and movies, the bad guys are nearly always all-bad. Take out those shows and films where the bad guy is portrayed neutrally to create a shock later, and it’s hard to recall any dramas where evil is done by an otherwise good person.
If you actually think that’s how it is in real life, it becomes easy to presume innocence, or at least to presume extenuating circumstances, when evil is attributed to someone you know and like.
Sep
29
American Samoa had some financial issues before the earthquake Tuesday and now those problems are going to be a bit worse.
The American Samoa legislature had already been grilling Governor Togiola Tulafono on how much money he had taken from a fund that he proposed to tap yet again for $5 million to buy the Chicken of the Sea tuna cannery in Pago Pago.
That cannery, which has 2,100 employees, is an instant economic crisis after closing Wednesday. No buyer has stepped forward. Tulafono wants to buy it and hire someone to operate it for the government. His thinking is that $5 million isn’t so much when you consider all the social benefits the government will have to pay to those 2,100 people if they’re thrown out of work.
Indeed, Tulafono wasn’t in American Samoa when the tsunami hit Tuesday because he was in Honolulu looking for someone to manage the cannery. At this writing Tulafono was planning to hitch a ride on a Coast Guard C-130 taking relief supplies to Pago Pago and would be back home at first light Wednesday.
Commercial aviation isn’t so simple at the moment. The Federal Aviation Administration has closed Pago Pago International Airport after damage to the runway. Hawaiian Airlines, whose next department from Honolulu to Pago Pago is scheduled to leave at 5 p.m. Thursday, says it still hopes to be able to make that run.
It is not evident to me how much American Samoa government funds have been tapped. Certainly the government has economic challenges not unlike those of the 50 states in this global downturn. Reading Pago Pago news accounts, I see that lawmakers and the governor do not trust each other – even when the governor answers all the questions he’s asked, the lawmakers reply that they would now like it in writing – but it’s not clear who, if anyone, is right. It may be that there is enough money for disaster relief, but then not enough left over to keep the cannery open.
