Skip to comments.When Bankers Behave Badly
Posted on 07/19/2012 3:42:27 PM PDT by Notary Sojac
Wheres the outrage? No, not at President Obamas performance, foreign and domestic, or his airbrushing the past three years of his failed economic policies out of the history books. That particular outrage Mitt Romney is taking good care to express as part of his strategy of concentrating on Obamas failures rather than risk proposing policies to return morning to America. But where is the Republican candidates outrage at some of those who might be considered his own friends and allies?
Just because Obama attacks fat cat bankers in one of his egalitarian rants doesnt mean that Romney should refuse to excoriate those bailed-out, over-bonused executives when their behavior warrants it. Ever since the days of Adam Smith, believers in the virtues of free markets have known that people of the same trade seldom meet together . . . but the conversation ends in a conspiracy against the public. Its bad enough when these conspiracies aim to fix prices on, say, construction projects. But when the conspirators are bankers who label themselves dudes and big boys, and promise each other bottles of Bollinger for manipulating prices, and when the price they fix is the interest rate that the Wall Street Journal estimates governs $800 trillion of loans and derivatives worldwide, including almost one million U.S. home loans indexed to Libor carrying an unpaid principal balance of $275 billion, we have an assault on the heart of capitalism, not to mention a potential bonanza for class-action lawyers. The CEO of one multinational bank told the Economist, This is the banking industrys tobacco moment, referring to that industrys $200 billion claims payout.
Thats what the bankers fixing of the so-called Libor (London InterBank Offered Rate) is all about. Dont worry about the details. Know only that the bankers manipulated the global rate to turn a market into what the Bank of England calls a cesspit in order to enhance their profits; that Barclays has agreed to settle for a fine of $450 million and demanded the resignation of its American-born president, Bob Diamond; and that the British authorities are all over other banks like a tent.
And where is Mitt Romney, with a golden opportunity to show that he is outraged at this latest effort of the banking community to appropriate to itself a still larger share of the national income, to show that he believes in a market manipulated neither by government bureaucrats nor by private bankers? Its not banker-bashing to criticize bankers when they deserve it. And its not bad politics when that criticism lets Main Street know that Wall Street does not own this candidate. The Manhattan Institutes Nicole Gelinas said it best: When a bank egregiously breaks the law, it should run the risk of a criminal conviction. Why not a simple comment from the candidate that bankers monkeying with the Libor this way for their own financial benefit is outrageous? Alas, that statement came not from Romney but from Barney Frank, who predictably sees congressional hearings and more regulations as the solution.
Then there is the not-so-small matter of the structure of the financial sector. Romney must know better than anyone that the folks running our big banks, including Obamas favorite banker Jamie Dimon, are hardly paragons of risk assessment. After all, Bain Capital, where Romney made his fortune, existed in part because -worthy businesses often could not borrow on attractive terms from traditional banks. He must know two other things about these banks: They are too big to fail, and too complicated to regulate. So where is he when economists say that the better alternative is not more of the failed policies of the Obama yearsregulating the unregulatable, bailing out when all else fails but breaking up the big banks? Not for vulgar populist reasons, but to improve the functioning of the capital markets. If so inclined, he could toss in a fairness argument to top off the economic efficiency point.
But that might be too much to ask of the candidate of a party that sees the need to bail out banks but is squeamish about supporting measures to keep delinquent mortgagees in their homes. Pity. After all, it took both improvident borrowers and imprudent lenders to build up this stock of dicey paper, so why not share the burden of digging out of the problem more evenly? I knowmoral hazard, the fear that failing to punish bad behavior by borrowers will produce imitations of that behavior. A legitimate consideration, but not one that tops all others, including the social cost of evictions, borne not only by the evicted family, but by every family on the block, doomed to see the value of their homes fall as the vacant adjacent house deteriorates under the incompetent maintenance of the foreclosing bank.
Besides, the moral hazard argument applies not only to borrowers, but to bankers, many of whom remain in place and well compensated after seriously damaging their institutions and the larger economy, while -others have had soft landings thanks to golden parachutes. The absence of consequences for reckless lenders as severe as those imposed on delinquent borrowers is surely the stuff of which moral hazard is made.
Then there is the matter of consumer protection. Democrats seem to have a monopoly on wanting to save consumers from the big businesses with which they often partner. Why does Romney not agree with the Consumer Financial Protection Bureau (CFPB) that mortgages should be made more understandable to the borrower? After all, good conservatives should favor programs to eliminate information asymmetrya situation in which one party, in this case the lender, knows a lot more about the costs and risks inherent in a transaction than does the other party. He could at the same time take a swipe at the administrations preference for regulation, in this case the CFPBs 1,099-page proposed regulation to mandate a three-page mortgage-disclosure.
Instead of such complicated regulations, a gift to the class-action lawyers who contribute so generously to Democratic campaigns, Romney can propose a simple rule requiring lenders to keep skin in the game so that they have an incentive to lend only to borrowers with a reasonable prospect of repaying their loans. And elimination of the multiple barriers to entry in the real estate, mortgage brokering, and related businesses. Incentives and competition trump regulation in serving the national interest every time.
And a good conservative, which Romney claims to be, certainly should feel comfortable railing against charges and fees that are obscured to the point of invisibility and enacted retro-actively. Thats not how well-functioning competitive markets work. Instead of more regulation, Romney can propose eliminating barriers that make it difficult for large retailers to enter the credit card and other banking businesses. The fact that Elizabeth Warren, the creator of the CFPB, is on the warpath against bankers is enough, of course, to make one want to oppose all the bureaus doings. But that is an urge that can be overcome in the interests of championing borrowers in an imperfect market.
Finally, where is Romney every time the Fed cranks up the printing presses, or depresses interest rates first by one means and then another? Surely he knows that the hyperactivity of the Fed is due to the failure of the Obama fiscal policies, threatens future inflation, and cheats savers in order to benefit borrowers. Millions of retired folks are watching their pensions and modest savings shrink in the face of the Feds low interest rate policy, one that has failed to persuade Americas corporations to use their $1.7 trillion cash pile to build factories and hire workers, as Carnegie Mellon University professor Allan Meltzer so clearly pointed out in the Wall Street Journal last week.
Theres more, but you get the idea. There is solid conservative ground on which Mitt Romney can stand that would enable him to promise to lance the festering sore that has come to be called crony capitalismdeals between big business and big government to shield big business from competition and help big government get even bigger, all the while distorting capital markets. Indeed, there are instances when good conservative economics just happenswell, not just happens, but inevitably provesto coincide with politically popular causes.
As University of Chicago professor Luigi Zingales puts it, Democrats have promoted crony capitalism to foster their liberal agenda. They are pro-businessat least certain businessesbut fundamentally anti-market. This is exactly the opposite of what most Americans want. . . . A pro-market, but not pro-big-business, platform would be a winner for Republicans.
For big business, a new regulation means hiring a few more lawyers; for small businesses, it means trying to hurdle still another barrier to entry. Take the case of Barclays, the leading Libor rate-fixer (so far as we know). Britains bank regulator complains that Barclays always leads the charge for more regulation: Barclays has a tendency continually to seek advantage from complex structures or favorable regulatory interpretations. Pharmaceutical companies promised support for Obamacare in return for provisions that protect them from competition from reimported drugs and generics. Insurance companies accepted costly provisions of Obamacare in return for regulations that allow them to roll those costs into the expenses they will be permitted to recoup in rates and, more important, penalties (oops, sorry Chief, taxes) that deliver to them millions of unwilling, healthy new customers. Big banks are allowed to shelter under Fed regulations when the going gets tough in return for muting their opposition to regulations that will do more to hurt their small competitors than prevent them from going about their business in the good, old fashioned way. Campaign contributors are allowed to short-circuit capital markets and obtain subsidies for their uneconomic green enterprises, sopping up capital that markets would surely allocate to more promising ventures.
What Obama has on offer is not the entrepreneur-driven market capitalism that conservatives have always favored. What Obama offers is a crony capitalism that Mitt Romney is particularly well suited to attack, using his knowledge of how capitalism should work. And what Mitt Romney can offer is a conservative willing to make the tough, and dare I say it, fair and radical decisions that will get capitalism performing as it once did: creating huge amounts of material wealth, and distributing it not to presidential cronies, or the companies with the biggest lobbying budgets, but to those who create wealth with their capital, risk-taking, and hard labor. Thats the right track that two-thirds of Americans believe the current engineer-in-chief has veered off.
Actually compared to most Politicians (both parties) are much more corrupt than anyone in the business community.
What say we call a spade a spade - hey? No, nothing racial in that statement - heh, (unless you are talking about Detroit) - the most corrupt government in the history of America!
Too big to fail, too big to exist.
Sorry, but too big to fail only applies to whose in power (Washington). Does not really have anything to do with how big they are or how much money they control - it depends upon how much they control for whom. Welcome to the real world.
I want to see more articles like this on Free Republic. We sit on our @sses while the banker oligarchs, the monopolists, the right wing globalists, take us to the cleaners and force us to drop our standard of living to Third World standards to pay for their money grubbing gambling debts.
It is way past time for conservatives to separate the cancer of “monopolism” from the idea of capitalist money exchange economics. Monopolism is not capitalism, it is FASCISM, a notion a lot of good people died fighting against not so long ago. C’mon, you big strong manly men, grab your yarbles and start to make some noise. Put the banksters in jail.
” Actually compared to most Politicians (both parties) are much more corrupt than anyone in the business community.”
Folks, we have a WINNER!!
Bankers run the gamut of good to evil.
Companies like Bain Capital overall, did far more good than harm.(Romney) Companies like Countrywide Home Loans (who set up an entire subsidiary in California to finance illegal immigrants)are pure evil. BUT....the only way Countrywide could get away with this were laws initiated by Chris Dodd, and Barney Frank. The savings & loan crisis in the late 1980’s, and this mortgage meltdown of recent times could never have happened without laws, and rules initiated by Congress.
Now, lets talk about Obama and the so-called “crony capitalism”. Obama is not a crony capitalist; he is a psychopathic combination of communist and fascist, and hates America. His hatred emanates from his early indoctrination by a handful of evil anarchists like Alinsky, Cloward, and Piven. Sure, he plays the crony capitalist because the business whores like GE are easily bought off. Obama is merely USING them until such time as he can completely crash the American economy.
Our REAL crisis the past 25 years is the erosion of business ethics. Bankers, and most CEO’s of big business are compensated by quarterly, or short term performance.
Unless this changes,the long term sustainability of our businesses will suffer, and the long term health of our economy will continue to erode.
Romney has got to expose Obama for what he is. I don’t know if he has the balls to do so. As of today, there is no indication that he does. Time will tell.
I will state that Obama has deferred most his “total destruction” until his second term. As a man of finance, I know most of his plans to destroy our economy, and how he will put them in place. His plans are numerous, and they cover every possible contingency. If he loses, we have a chance, but only a chance. If he wins, nothing will stop him, shy a CW2, or some form of comprehensive state by state rebellion.
Romney seems to have heard your plea to expose Bambi already.......he hit him hard this past week. I think he'll start again once the furor from the "tea party shooter" passes.
” ! And for once, I wish those who want to cut this president a break, would consider this with an open mind. He is the destroyer. He is dangerous to us all, the U. S. Citizen and the nation we love. He is contriubuting to destabalization in the Western nations, not to forget the rest of the world. It’s so bad, I actually think of this guy in terms of Biblical prophecy being played out.”
Yes, Obama is destagbilizing the entire world in any and every way he can, including our military.
” Charging 30% interest rates on loans is criminal in nature. And yet, good old Congress has allowed it. Businesses gutted U. S. communities in order to move production off-shore. Neighborly love, transitioned into F everyone but yourself, and take no prisoners. Government actually facilitated this.”
The feds used to have a cap of 18% on any consumer loan. Then of course, they eliminated it in 1979. Within months, hard money lenders were charging up to 38% on second mortgages in Californis to anyone desperate enough to pay it. Loan sharks used to be the only ones who charge 30 or more percent. Now Capital One does it for credit cards : )
Capital One isn’t the only financial concern doing it. That’s not to imply you mean that. You clearly didn’t.
I have had a number of accounts charge me in that neighborhood for the debt they were carrying.
Some of them were mainstream big names too.
I called them on it, and I actually got some of them to lower their rates. I advise everyone to do that. Some companies won’t negotiate, but others surprisingly will.
I also call the corporate offices of my cable provider about ever six months, and ask them to review my statement to see how they can lower my bill. They usually come up with $25 to $35 dollars in monthly savings for the same service, specials and the like. It helps.
We’re concentrating on eliminating our debt. We’ll be paying off four or perhaps five accounts late this year and into early next year.
I wonder how many folks make monthly payments on credit, not realizing that upwards of 50 to 75% of the payments are going toward interest, and not the principle.
“Loan sharks used to be the only ones who charge 30 or more percent. Now Capital One does it for credit cards : )
I have never seen a credit card with 30%,the highest I have ever seen was 12%,which I won’t pay.
Why would anyone get the usurious rate cards when there are others available?
” I called them on it, and I actually got some of them to lower their rates. I advise everyone to do that. Some companies wont negotiate, but others surprisingly will.
I also call the corporate offices of my cable provider about ever six months, and ask them to review my statement to see how they can lower my bill. They usually come up with $25 to $35 dollars in monthly savings for the same service, specials and the like. It helps.”
Good on you! I do the same, when the opportunity presents itself. Most people don’t know they can negotiate just about any rate or term.
A few years ago, the bank credit card lobby spent over 100 million pestering congressmen to allow usurious rates, and also make it very difficult, or next to impossible to charge off credit card debt, through bankruptcy. They bought the politicians(Dem & Republican alike). Now they issue credit cards to anyone, regardless of credit rating, and charge 28.99 to 30.99 APR. My main card charges 6.99%, but I always wipe it at the end of the month. Consumer-debt- free is the way to go if you possibly can.
Glad to hear you do this also.
Debt free is the way to go. If you look back at all the funds you paid out in interest, it would make you ill. It does me when I look back.
Real shame isn’t it! We’ve come to expect so little from politicians and they don’t disappoint!
” Real shame isnt it! Weve come to expect so little from politicians and they dont disappoint!”
At this juncture, all I expect from our so-called GOP leaders like Boehner and McConnell is aiding & abetting our political enemies, while proclaiming how they fight for us. This is by far the worst set of cowards we have ever been stuck with. A shame ? Yes. More like a tragedy.