Friday, September 16, 2011

The Vickers Commission

Regular readers of this blog are familiar with my view on the repeal of Glass-Steagle back in the last days of the Clinton administration, and my view of Bill Clinton for signing it. Irregular readers, I suppose, should be made aware that my feelings about that action are far more uncomfortable than their constipation.

The British, at least, seem to see the problem in allowing retail banks and investment banks to be one in the same. Governments that provide deposit insurance, when banks are on the brink of failure, find themselves facing the necessity to bail out the whole institution — thereby making whole investors, speculators, and just plain gamblers as well as depositors.

What Sir John Vickers and his colleagues have come up with, for the UK, is a plan to "ringfence" the segments of the banking industry that serve ordinary consumers and businesses, while letting the "players" eat their losses. It sounds like a good idea to me, albeit a bit odd. The too-big-to-fail institutions, under the Vickers plan, could be allowed to fail — while their retail subsidiaries would be saved. Go figure.

Well, if that's all that's politically possible, I say, "Go for it." The British, according to all the talking heads I've heard, are likely, indeed, to "go for it." Here in the USofA, of course, anything similar wouldn't be at all likely. The banks still own both our political parties, and they're still working (with nauseatingly predictable success) to eviscerate Dodd-Frank, which wasn't a particularly strong bill in the first place.

What we really need, of course, is a return to Glass-Steagle — which would require the megabanks to split their investment and retail segments into separate companies, and might encourage a bit more healthy fragmentation along the way.

2008 should have taught us that too big to fail is to big to exist.

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