Money Matters: Divesting from our investment banks

By Tucker Slosburg

The Daily Record Newswire

It is fair to say that the major investment banks, particularly Goldman Sachs, made ethically criminal decisions in regards to their trading behavior antecedent to the recent recession. While personally abhorring the behavior of the banks, we must accept that lack of regulation allowed their unfortunate trading and financing behavior. In case you forgot, they hedged against funds they sold to clients.

Last Monday night, HBO aired its movie, "Too Big to Fail," an adaptation of Andrew Ross Sorkin's book, which describes the emotional and political drama behind Lehman Brothers' bankruptcy, AIG's bailout, and the creation of TARP - a Keynesian attempt to rescue the capital markets from supporters of supply-side economics. A fun story to be sure.

Some may find the promotion of the movie an unpleasant reminder of the lingering troubles facing us. As Mark Gongloff of the Wall Street Journal opined: "the biggest issue with this overwrought talkathon was that it taught us nothing, really." In response, Heidi Moore, the New York correspondent from American Public Media's "Marketplace," noted on her Twitter account: "Everyone I know really liked the 'Too Big to Fail' movie, unless they worked at the Wall Street Journal. #newswars."

It makes sense that Gongloff would think the movie tells us nothing new. Wall Street reporters, analysts, and bankers alike were familiar with credit default swaps, collateralized debt obligations, and words like tranches. Most of us still don't know exactly what happened and how TARP came into existence. We just knew banks got money and while we watched, jobs evaporated overnight. Gongloff's arrogance and assumption that most Americans had the time to study and comprehend the complexity of the crisis is actually insulting.

How many people actually read, or even had time to read, books like "All the Devils Are Here" or "The Big Short"? These books, among many others, painted a clear picture of how we got to our current position, but they required time, more time than the particularly uninformative, yet Academy Award-winning, documentary Inside Job.

"Too Big to Fail" accomplishes the task of explaining why private banks agreed to bailouts from the U.S. government, despite their initial trepidation. Moreover, it fosters a sympathy for Hank Paulson (and to an extent his staff) for weighing the limits of governmental powers and intervention against the dire necessity of capital influx to investment banks.

While most of Main Street still wants to see a criminal indictment of bankers, it seems unlikely. Besides, as the movie illustrates, Wall Street hoped to pin the financial crisis upon the greedy borrowers who took on loans they couldn't afford, and that they (people on Wall Street) merely made profits from people who chose to take risks.

Conversely, those "greedy" borrowers believed they were eligible for loans because banks were giving them loans, loans that eventually got sold to Wall Street for a high price. After all, banks wouldn't give out loans if people couldn't repay them, right? We know that's changed. Those 'greedy' homebuyers were two parts greed and one part duped by people who either didn't care or understand credit risk.

"Too Big To Fail" makes it clear that the Wall Street bailouts were necessary to stave off a massive panic in 2008. Now, however, we must discuss the continued public support for the large investment banks post-bailout. Despite benefiting from government intervention and paying back loans, the banks spit in the face of America by engaging in record profits at the cost of the 13.7 million people still unemployed.

It was shameful for Wall Street to blame the public for causing the crisis. However, the public now deserves indictment for continued use of Goldman or J.P. Morgan. We should have sought policies that helped stabilize the market, but eventually phased out or broke up the banks.

The movie "Too Big to Fail" depicts the CEO of General Electric calling Hank Paulson wondering why his company, a company that makes dishwashers not homes, finds itself unable to finance day-to-day operations. That we continue using our traditional investment banks for day-to-day financing highlights the public's lack of courage and short-term memory.

The greatest crime of the American people rests not in our abstract politics, but in our continued belief that Wall Street investment banks should be the ones financing our current and future economy.

We need new investments banks, and preferably private ones not beholden to stockholders but to their clients. Performing CPR on the banks in 2008 allowed us to stabilize, but it's now time for the American people to pull the plug.

Published: Tue, May 31, 2011

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