When I am bereft of ideas for posts around here, I can usually count on the New York Times to provide some kind of op-ed/news article/Paul Krugman Keynesian diatribe to get me riled up and in the mood (double entendre intended, wink wink).
Today, as usual, is no exception.
Amar Bhidé (who apparently is a professor of both law and diplomacy – wow! – and so is obviously credentialed to comment on the regulatory matters of capital markets) has recently published this piece in the NY Times titled, Bring Back Boring Banks, an exhortation to mandate that banks quit it with all the complexity and stuff, and make it easier for us “normals” to understand what it is banks exactly do. Here, have a taste!
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Banks must therefore be restricted to those activities, like making traditional loans and simple hedging operations, that a regulator of average education and intelligence can monitor. If the average examiner can’t understand it, it shouldn’t be allowed.
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So what are these “activities” that our esteemed Professor Bhidé would like to see removed? (Also, “average intelligence”? Listen, I don’t understand with physicists get up to, but I don’t take that as an impetus to go out an lobby for nuclear power plants/high energy physics experimentation/astronomy to be banned by the feds)
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Banks should be forced to shed activities like derivatives trading that regulators cannot easily examine.
Tighter regulation would drastically reduce the assets in money-market mutual funds…
Other, more mysterious denizens of the shadow banking world, from tender option bonds to asset-backed commercial paper…
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I’m sorry, excuse me? Money-market mutual funds? Asset-backed paper? These are the opaque, complex activities that we need to abolish? It seems like the ideal financial market being sketched out here is a few steps above the money changers that got tossed from the temple. Oh, and don’t forget about those pesky derivatives! No derivatives (although I am unsure how the “simple hedging operations” referred to will work without derivatives, but now I’m just being nitpicky).
And now we get to the final bit of lunacy. FDIC insurance on all deposits at the bank. Not just those below 250k per account, I’m talkin e’rrrrrything. What is this really supposed to solve? I feel that anyone who really wants the comfy blankie of FDIC insurance can find a way to get it, even if they are lucky enough to break through that 250k ceiling with one bank transfer.
Mr. Amar probably would have benefited from consulting some of those Economics Ph.Ds they have floating around at Fletcher before penning his little letter to the New York Times. Do you know he also wrote a book about this kind of shit!? I bet it’s awesome. In that same way that Snakes On A Plane was awesome. Except you don’t get Samuel L Jackson in the book. Probably.
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