Bankers should be boring

The following excerpt is from the "Ideas" list from the July/August 2012 issue of The Atlantic:

During the 1950s and ’60s, financial institutions were tightly regulated. Bankers did not make money by trading for their own account but instead earned fees for providing advice to their customers and serving as a go-between for companies raising capital. Their goal was to get to know their clients well, understand their problems, and act in their best interests—somewhat like family doctors. They were not compensated absurd amounts. Wall Street was viewed as a place not for high flyers but for sober, cautious people who were perhaps a little boring. Meanwhile, the economy boomed and we had very few financial crises. Let us hope we are heading back to those days.

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So who wants to be a billionaire?

Clusterstock has detailed and easy-to-follow instructions to making ridiculous amounts of easy money. Start by forming a bank, hire all of your friends as bankers and raising some capital. After those preliminary steps, the hard part is done:

STEP 4: Borrow $9 billion from the Fed at an annual cost of 0.25%. STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45% STEP 6: Sit back and watch the cash flow in. At this spread, you should be earning at least 4% per year on your $10 billion of capital, or $400 million. Sure, there's some risk that the Fed will grow a backbone and raise short rates, but there's not much risk. (They have an economy to fix and banks to secretly recapitalize). And in any event, if the Fed raises short rates, making your $1 billion will just take a bit longer. (And if they REALLY raise rates, causing you to actually lose money, it will be someone else's problem.)

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Dark days and “Green Shoots”

“We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can't have both.” --Supreme Court Justice Lous D. Brandeis
For all the discussion of "green shoots" and an economy on the mend, there's plenty of data and commentary to the contrary. What's interesting to me, is that recent developments only highlight the extent to which Main Street economics have become irrelevant to Wall Street. The administration is claiming that the crisis is largely over, and that it's time to breathe a sigh of relief. President Obama yesterday argued that "we can be confident that the storms of the past two years are beginning to break." Treasury Secretary Timothy Geithner discussed last week beginning to wind down some of the programs that were implemented in the heat of the crisis late last year. The value of the Dow Jones Industrial Average has risen from its July low of 8146, and is now trading around 9600. Everything seems well and good in the world of high-finance. But others see it differently. Nobel-prize winning economist Joseph Stiglitz argued this week that nothing has been done to address the underlying banking problems that created the mess in the first place, adding that "the problems are worse than they were in 2007 before the crisis." Simon Johnson, former chief economist of the IMF, echoes that sentiment, and points out that the real issues underlying the crisis have not been addressed at all. He lays out 4 areas of concern:
  1. The big banks need to be made to be dramatically smaller.
  2. Executives need to have a great deal of their personal wealth tied up in their banks to prevent a reckless focus on short-term results.
  3. An end to the revolving door between Wall Street and Washington, DC. "There is no way people should be able to go directly (or even overnight) from a failing bank to designing bailout packages to benefit such banks. In any other industry, in any other country, and at any other time in American history, this would have been seen as an unconscionable conflict of interest. "
  4. The financial elite is aware that they are able to exploit the Federal Reserve and use it as a "bailout machine".

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