Gang of Five

Here's a bit from an interesting article by Daniel Gross at Slate magazine:

But if the banks want us out of their business, they should get out of our business first. We've (barely) lived through a 40-year period in which investment banks have imposed themselves on us. They effectively moved into our house, raided our fridge, and set the joint on fire. Now they're complaining that our renovation efforts are cramping their style.

The genesis of the problem was the transformation of investment banks from private partnerships into publicly held companies. The process began when Merrill Lynch went public in 1971. It was followed by the four other horsemen of the 2008 credit apocalypse: Morgan Stanley (1986), Bear Stearns (1985), Lehman Bros. (1994), and Goldman Sachs (1999). The Gang of Five went public so they could compete with the international banking giants that were encroaching on their core business of underwriting stock offerings and advising firms and so they could boost their activities in risky, capital-intensive businesses like proprietary trading. "In order to have a capital base that would support the funding they needed, they had to be public," says Roy Smith, a former Goldman Sachs partner and a professor of finance at New York University.

Going public allowed investment banks to get bigger, which then gave them the heft to mold the regulatory system to their liking. Perhaps the most disastrous decision of the past decade was the Securities and Exchange Commission's 2004 rule change allowing investment banks to increase the amount of debt they could take on their books—a move made at the request of the Gang of Five's CEOs. Before Lehman crashed, it had amassed more than $600 billion in debt. No partnership or private corporation could have accomplished that feat.

Read the whole article, it is interesting. And you get some links that are well worth following up.

I'm bitter about the banks and how they wrecked the economy. I do think they need new management. I guess that will take a stockholder revolt. It is incredible that these bozos pay themselves so handsomely while they pick the pockets of the American taxpayer as well as the pockets of the stockholders. The problem is how do you get good corporate management when the managers are greedy & corrupt?

I'm all for better regulation. The sad fact is that the banks are using bailout money to bribe politicians to back off from re-regulating the banks. This is criminal. But given the Supreme Court's love for corporate "persons" and their contempt for "the people", I don't see this political corruption being cleaned up any time soon. This was the "change you can believe in" hope that I had in Obama, but I've lost all that hope. As best I can tell, Obama has been bought. He works for the banks while pretending to work for the people.