Remember the Good 'Ole Days of Banking?

Here’s a new definition of “chutzpah”. Part of the new financial reform legislation forbids domestic banks from trading in derivatives. Derivative trading (basically financial instruments that bet on other financial instruments) is a major source of revenue for the institutions that are currently posing as banks. The top five “banks” have spent upward of $6 million lobbying to have the prohibition deleted.

Their argument, now get this, is that if they are not allowed to play in the derivative market it will be left only to foreign banks AND FOREIGN BANKS ARE NOT REGULATED BY THE US GOVERNMENT.

Remember the story of the kid who murdered his parents and then pleaded with the court to give him a break because he was an orphan? This is even better than that! Who are these guys kidding?

They don’t want to stop playing the market because then they may be forced to try to make money being banks. If you look at the obscene profitability that banks are now reporting (and asking for an attaboy for recovering from last year’s meltdown) and then look at the source of the profits, a small fraction of it comes from normal banking activities. Interest arbitrage, derivative trading and the like represent the majority of the profits.

Remember the days when a bank took depositors’ money and loaned it to businesses so that the local and national economies would have a source of fluidity? Oops, that required exposure to risk and the careful analysis of financial statements and management activities. And, as we now know, most of the largest companies were lying (and their auditors were swearing to it) so who wants to be in the middle of that mess?

Besides, it’s much more sophisticated and fun to play with the big boys (and become one yourself) than it is to sit behind a roll top desk and serve customers.

How ‘ya gonna keep ‘em down on the farm after they seen Paree?

rjs