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I don't see how Wall St will be "tamed" until the following criteria are met: * No individual bank is "too big to fail". Today we have several banks which are

by erdevs 10y ago

I don't see how Wall St will be "tamed" until the following criteria are met: * No individual bank is "too big to fail". Today we have several banks which are all too big to actually let fail, which means we're likely to need to do structured bailouts for them again. * Commercial banking and investment banking are split again. As it stands with commercial banks and investment banks housed in the same entity and sharing risks, there is the constant risk of contagion from bad IB bets jeapordizing commercial banking assets and operations. This not only creates further interdependence and correlation between IB activity and commercial banking, but also adds more pressure for bailouts of big, cross-breed banks. * There are legitimate personal fines and even criminal penalties and a demonstrated will of enforcement for individuals who participate in fraudulent or negligent investments. We pursued (to a lighter degree than we probably should have) the banks themselves for these activities and received judgments and settlements, yet we didn't pursue many personal penalties nor criminal cases related to any of them. See: http://www.theatlantic.com/magazine/archive/2015/09/how-wall-streets-bankers-stayed-out-of-jail/399368/ http://www.theatlantic.com/magazine/archive/2015/09/how-wall... We need to reconcile this and even strengthen the laws governing bank investing, so as to disincent poor investment behavior at the most personal level, rather than simply being a financial calculus for the company itself, with no expected loss or penalty for the persons involved in the decision making.

dclowd9901 10y ago
Your last point is especially salient. If wall street needs anything, it's a chilling effect. The threat of personal liability is a pretty good one. Hell, we jail journalists for not revealing sources, but we can't throw a banker in jail for tanking the economy?
- dublinben 10y ago
  That's probably not the best comparison, since we shouldn't be jailing journalists for protecting their sources.
  - dclowd9901 10y ago
    That was kind of my point.
wmccullough 10y ago
I agree with your thinking. What troubles me more is that even the people of the country seem to be very apathetic about doing anything. Take this petition for example: https://petitions.whitehouse.gov//petition/hold-accountable-those-who-were-charge-financial-institutions-during-2008-financial-collapse https://petitions.whitehouse.gov//petition/hold-accountable-... Two signatures? Really? Why are we also not setting examples of these people who knowingly destroyed lives? EDIT: I see that people are using the downvote button as a disagree button. Please, enlighten me as to why CEO's who knowingly committed fraud shouldn't be charged with wire fraud? I'm legitimately curious.
- dangrossman 10y ago
  > the people of the country seem to be very apathetic about doing anything Do you remember Occupy Wall Street? "The people" organized, disseminated information, marched, protested, petitioned, wrote and called legislators, held sit-ins and partook in civil disobedience by the millions. > Take this petition for example That link isn't illustrative of anything. There were many petitions, with many tens of thousands of votes. You won't find them any more because they were created many years ago, and expired petitions are eventually deleted from the site. > Why are we also not setting examples of these people who knowingly destroyed lives? People went to prison. Not everyone you'd like to have charged (a) actually committed a crime, and (b) there's a prosecutor who can both prove this and prevail over a larger and better-funded legal team on the defense. > shouldn't be charged Putting words in the mouth of others probably isn't going to get you whatever response you're hoping for.
  - wmccullough 10y ago
    While I agree with you that my response is a bit harsh, at least you provided a real constructive reason for the downvote. I think my point still stands. The issues of Wall Street won't be solved until the apathy of this nation fades. Our citizens are coming to accept the behavior of elites as the status quo, and it's terrifying. Overall, I'm done with this site. You cannot accomplish anything constructive here. This place has become a contrarian dumpster fire. People will literally disagree with you for reasons that add zero value to any discussion. It's to the point where if I exclaim that the sky is blue, some troll will inevitably show up and argue that I'm wrong and the sky is azure instead.
cm2187 10y ago
> Commercial banking and investment banking are split again If we take the example of the UK, all of the bank failures were because of non investment banking activities. RBS failed because of its excess of leverage as a result of its disastrous acquisition of ABN AMRO and because of its loan book, HBOS because of its loan book (essentially commercial real estate exposures), and Northern Rock because of their over-reliance on wholesale funding. There are examples of banks failing or making large losses because of the investment banking activities (Lehman, Merrill, Bear Stearn, UBS) but my point is rather that the principle "Retail banking = safe, Investment banking = risky" is simply not true. In a way, universal banks tend to be more robust than a specialized bank, as it benefits from funding and revenues diversification (and cheer size to absorb losses). > we didn't pursue many personal penalties nor criminal cases I am not saying that there hasn't been any fraud in the financial crisis but I am of the opinion that it is not fraud that caused this crisis. It is the over-reliance on leverage, short term funding, and a belief that the US real estate market would never go down (belief that many people have today in the UK). You can't send people to jail for making bad business decisions. Some banks were run in a moronic way, but being incompetent or missing a fundamental economic driver is not a crime.
- erdevs 10y ago
  I fully concur with you that the sorts of investments that depository banks can make should be more highly regulated, as should their leverage ratios. I didn't include that on my top list for "taming Wall St" because we were discussing Wall St and this wasn't as much of an issue in the US/Wall St as in the UK. That said, I definitely agree this was an issue in the UK. Another note here is that much of what brought down these UK banks was contagion, due to the bubble in commercial and residential real estate pricing and then to the spreading financial crisis and it's effects on chilling available financing and liquidity. > In a way, universal banks tend to be more robust than a specialized bank, as it benefits from funding and revenues diversification (and cheer size to absorb losses) This is not only an unproven claim, but a disproved claim. In the US, cross-breed banks resulted in greater contagion across the financial sector and put depositories at risk, increasing the need for bailout. You could in theory get the best of both worlds by having a highly, highly regulated and constrained investment banking arm of a depository bank. But then how well would it compete with standalone investment banks? And would we really be able to ensure complete separation of risk between activities? Doubtful, in practice. This is a suboptimal set up. Depositors in a bank do not deposit their money with the idea that it is going to be put at any significant risk. It's supposed to be effectively warehoused and insured. Taking complex and risky bets with deposits, or capital derived from or backed by a depository base of capital, makes no sense on first principles and the theory of combining operations for some benefit in diversification has been falsified in practice... the opposite happened, with higher degrees of correlation and contagion happening in reality. > You can't send people to jail for making bad business decision No, but we didn't pursue even a tiny fraction of the cases of negligence, let alone fraud. Also, reducing the discussion purely to jail time is a straw man. Civil penalties for individuals are perfectly justifiable, especially when you're well-compensated and when your decisions result in gross harm to the public.

by erdevs 10y ago

dclowd9901 10y ago

Your last point is especially salient. If wall street needs anything, it's a chilling effect. The threat of personal liability is a pretty good one. Hell, we jail journalists for not revealing sources, but we can't throw a banker in jail for tanking the economy?

dublinben 10y ago
That's probably not the best comparison, since we shouldn't be jailing journalists for protecting their sources.
- dclowd9901 10y ago
  That was kind of my point.

wmccullough 10y ago

I agree with your thinking. What troubles me more is that even the people of the country seem to be very apathetic about doing anything. Take this petition for example: https://petitions.whitehouse.gov//petition/hold-accountable-those-who-were-charge-financial-institutions-during-2008-financial-collapse https://petitions.whitehouse.gov//petition/hold-accountable-... Two signatures? Really? Why are we also not setting examples of these people who knowingly destroyed lives? EDIT: I see that people are using the downvote button as a disagree button. Please, enlighten me as to why CEO's who knowingly committed fraud shouldn't be charged with wire fraud? I'm legitimately curious.

dangrossman 10y ago
> the people of the country seem to be very apathetic about doing anything Do you remember Occupy Wall Street? "The people" organized, disseminated information, marched, protested, petitioned, wrote and called legislators, held sit-ins and partook in civil disobedience by the millions. > Take this petition for example That link isn't illustrative of anything. There were many petitions, with many tens of thousands of votes. You won't find them any more because they were created many years ago, and expired petitions are eventually deleted from the site. > Why are we also not setting examples of these people who knowingly destroyed lives? People went to prison. Not everyone you'd like to have charged (a) actually committed a crime, and (b) there's a prosecutor who can both prove this and prevail over a larger and better-funded legal team on the defense. > shouldn't be charged Putting words in the mouth of others probably isn't going to get you whatever response you're hoping for.
- wmccullough 10y ago
  While I agree with you that my response is a bit harsh, at least you provided a real constructive reason for the downvote. I think my point still stands. The issues of Wall Street won't be solved until the apathy of this nation fades. Our citizens are coming to accept the behavior of elites as the status quo, and it's terrifying. Overall, I'm done with this site. You cannot accomplish anything constructive here. This place has become a contrarian dumpster fire. People will literally disagree with you for reasons that add zero value to any discussion. It's to the point where if I exclaim that the sky is blue, some troll will inevitably show up and argue that I'm wrong and the sky is azure instead.

cm2187 10y ago

> Commercial banking and investment banking are split again If we take the example of the UK, all of the bank failures were because of non investment banking activities. RBS failed because of its excess of leverage as a result of its disastrous acquisition of ABN AMRO and because of its loan book, HBOS because of its loan book (essentially commercial real estate exposures), and Northern Rock because of their over-reliance on wholesale funding. There are examples of banks failing or making large losses because of the investment banking activities (Lehman, Merrill, Bear Stearn, UBS) but my point is rather that the principle "Retail banking = safe, Investment banking = risky" is simply not true. In a way, universal banks tend to be more robust than a specialized bank, as it benefits from funding and revenues diversification (and cheer size to absorb losses). > we didn't pursue many personal penalties nor criminal cases I am not saying that there hasn't been any fraud in the financial crisis but I am of the opinion that it is not fraud that caused this crisis. It is the over-reliance on leverage, short term funding, and a belief that the US real estate market would never go down (belief that many people have today in the UK). You can't send people to jail for making bad business decisions. Some banks were run in a moronic way, but being incompetent or missing a fundamental economic driver is not a crime.

erdevs 10y ago
I fully concur with you that the sorts of investments that depository banks can make should be more highly regulated, as should their leverage ratios. I didn't include that on my top list for "taming Wall St" because we were discussing Wall St and this wasn't as much of an issue in the US/Wall St as in the UK. That said, I definitely agree this was an issue in the UK. Another note here is that much of what brought down these UK banks was contagion, due to the bubble in commercial and residential real estate pricing and then to the spreading financial crisis and it's effects on chilling available financing and liquidity. > In a way, universal banks tend to be more robust than a specialized bank, as it benefits from funding and revenues diversification (and cheer size to absorb losses) This is not only an unproven claim, but a disproved claim. In the US, cross-breed banks resulted in greater contagion across the financial sector and put depositories at risk, increasing the need for bailout. You could in theory get the best of both worlds by having a highly, highly regulated and constrained investment banking arm of a depository bank. But then how well would it compete with standalone investment banks? And would we really be able to ensure complete separation of risk between activities? Doubtful, in practice. This is a suboptimal set up. Depositors in a bank do not deposit their money with the idea that it is going to be put at any significant risk. It's supposed to be effectively warehoused and insured. Taking complex and risky bets with deposits, or capital derived from or backed by a depository base of capital, makes no sense on first principles and the theory of combining operations for some benefit in diversification has been falsified in practice... the opposite happened, with higher degrees of correlation and contagion happening in reality. > You can't send people to jail for making bad business decision No, but we didn't pursue even a tiny fraction of the cases of negligence, let alone fraud. Also, reducing the discussion purely to jail time is a straw man. Civil penalties for individuals are perfectly justifiable, especially when you're well-compensated and when your decisions result in gross harm to the public.