After the 2008 financial meltdown, former Federal Reserve Chairman and legend Paul Volcker gave the country simple advice: let banks do what they do best—or at least what the public expects them to do—bank. That is, make loans to support long term growth and prosperity. But what fun is that when you can trade and invest in esoteric financial instruments? And in the process, make millions quickly and earn six, seven and eight-digit salaries, like your buddies at hedge and private equity firms.
The problem is twofold. First, banks may lose big time and again be hat-in-hand looking for a bailout. Have we forgotten that the bailout of behemoths Citigroup and Bank of America cost taxpayers billions and more seriously, almost took us all over the ledge with them? Second, banks may become too distracted by the allure of trading profits and shift resources and their best people to the trading side of the bank.
Nevertheless, the banks are not going quietly into the night. They lust for these potentially lucrative but no doubt volatile revenue streams. In that fight, they are enlisting the highest-paid and most well-connected lobbyists in the land. Their strategy seems to support a muddled patchwork of regulation that will not work and will necessarily enable banks to claim they are overregulated. (Very clever fellas.)
I trust Mr. Volker completely. He is his own man. He is owned by no one; it’s time to heed his warning. Keep it simple. No trading by banks. Period. End of story.
Assisted by Arezu Hadjialiloo