Friday, August 26, 2011

Banks have forgotten Econ 101 principles.

A lot of the big banks are struggling under the burden of a reverse run. Too many consumers are uncomfortable with investment in the markets due to the volatility in the markets which leaves banks with too much liquidity. The problem is compounded by the fact that in the current depressed economy, people aren't willing to risk taking out long term loans. Who wants to buy a house when you don't know if you'll still have a job next week.

This isn't something that should have caught the banks off-guard, but it has.

This is Econ 101 and the bankers skipped too many classes freshman year. They created demand by pumping high risk loans. They sold those loans to investors by lying about the level of risk. The loans came due, the borrowers defaulted, the investments went bad and now no one wants to do business with the people who started the mess. Demand for their primary income source, making loans, has dried up. We don't trust them anymore. We'll let them hold our lunch bag, but we took pictures of what is in it before we handed to them and we won't let them out of our sight until they give it back.

What's worse is that this is also a story about Civics 101. Despite being illegal, unethical and offensive, the banks made money and they want to keep it. They broke contracts, both implicit and explicit and they want to keep the profits. Forget punitive damages... they don't even want to pay back the ill gotten gains.

And now they turn to the government to relieve them of the burden caused by cheating. The government has done a lot to help them out, but politicians aren't willing to stick their neck out on the banks behalf right now. It doesn't pay off politically to be a patsy for the guy who got caught with his hand in the cookie jar.

Of course, the public suffers from ADD and soon its going to be easy for the banks and the politicians to play together. Bank of America already made their bid to buy Rick Perry in public and the panel of Attorneys General investigating the banking crisis kicked the last man actually doing his job off the panel.

One big problem with sorting out the mess is that despite certain politicians claims to the contrary, corporations are NOT people. They are a collection of individuals with one goal... the accumulation of  assets. What this means is that they aren't governed by ideas like self-preservation or sound reasoning.

In this sense, they are a lot like children; poorly educated, selfish two year old children in the midst of a tantrum. Until someone spanks them, they aren't going to learn. Unfortunately, Big Brother is satisfied with the loot the banks are giving him, so he won't be the one to deliver the whooping.

1 comment:

  1. I've said it before and I'll say it again: a corp. is perpetual, unlike humans; a corp. has only one motive and that's profit, unlike humans who can be altruistic, love, hate and empathize; a corp. is now global and has no allegiance to the U.S. You could also say a corp. is a souless, bloodless, heartless, unpatriotic piece of paper that only cares about the few who hold controlling interest. America has seen all this before except Teddy Roosevelt stood up to J.P. Morgan and Ron Reagan bailed out the S&L industry. The GOP is gutting Dodd-Frank and, as you note, Schneiderman has been booted for actually trying to do something. Actual Americans lost about $15T in home equity and 401k value in Bush's Depression and ... well, I'm mad as hell and won't take it anymore.


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