Critical Facts About Banking

It's too bad there is so much uninformed thinking about the bank "bailouts."

The seeds of the 2008 crisis were much the same as the seeds for the bank failures in 1929 and the Great Depression which followed - the combination of commercial banking functions (credit services and payment systems) with investment banking (forming investment pools of capital.)

The banking system we established after the crash divided commercial banking from investment banking.

Commercial banks handled deposits, extensions of credit (lending) and especially our payment systems - originally check clearing, but also wire transfers and generally almost all payments in the stream of commerce. (No payment systems, no commerce. High risk payment systems, high costs for commerce.)

These three functions are so important to a smoothly running economy that we deemed the large commercial banks to be covered by an implicit "guarantee" of our central bank. the Fed" as the "lender of last resort. (That did not mean all banks would be automatically bailed out if they were failing - it did mean that the fed would support them in times of need.)

Payment systems are particularly vulnerable to cascading system failures - and without effective and safe payment systems, our economy as we know it could not survive.

Commercial banks were covered by a comprehensive set of regulations geared to assure the "safety and soundness" of the banks and the banking system.

Commercial banks were considered low risk, and thus low investment return.

Investment banks pooled the money of investors (excess capital) and disperse it as investment capital.

With investment banking, there is not the systemic risk that the payment systems have, and the money is money intentionally put at risk in investments.

The investment banking sector was high risk, high reward, with relatively few regulations beyond attempts to reduce business fraud.

For reasons not really germane here, commercial banks were, profits wise, sucking wind starting in the late 80s.

The "fix" was to allow commercial banks and investment banks to merge (through the 'repeal' of that separation in the Glass-Steagall Act) - bringing the high risk functions of the investment banks under the Fed's "lender of last resort" function so necessary for the payment systems and the universal need for credit.

And thus, we had the inevitable investment banking failures of 2008 and the inevitably critical need for the "bailouts" to rescue the credit and payment system functions.

'Red Tape' and Republican-Lite

I'm still digesting President Obama's address on jobs last night.

But what's this "red tape" business, Mr President?

Is there a GOP jingle you don't buy into?

In case you didn't notice, "Red tape" is just another, underhanded way of referring to and slighting regulations.

Regulations save lives, Mr President. They save our environment, they protect our economy. And they protect jobs!

"Job killing regulations?" Pure right wing jingoism.

Regulations are checks and balances on, inter alia, corporations getting away with risky and even deadly self-serving acts to maximize profits for investors. Corporate self-interests are not always aligned with our country's self-interests.*

"Job killing regulations?" Go ahead, gut the EPA. We don't need all those jobs in the tourism and outdoor sports industries. We don't need all those "waste management" jobs.

Mr President, do you really think we don't need all that stuff that regulations protect? Sure, go ahead, buy into another GOP short-sighted, pro-business anti-people and anti-country idea. Whatever is good maximizing corporate profits is good for America, right?

Please Mr President, don't keep buying into right wing ideas and issue framing

For Pete's sake, don't you understand that you're losing support because in 2008 53% of the American people thought they were voting for a Democrat?

Please, understand, you caught a dangerous economic infection when you were hanging out with those Chicago School of Economics types. And that infection is going to kill your second term. And the American economy, as well.

= = = =
* Re "self-interests"

Please compare:

"Maximize Investor Profits"

with

"To:

• form a more perfect Union,
• establish Justice,
• insure domestic Tranquility,
• provide for the common defence,
• promote the general Welfare, and
• secure the Blessings of Liberty to ourselves and our Posterity"

Will His Coffin Be Nailed Shut Tonight?

What the heck, I may as well go out on a limb and thrill my many followers:

I'm afraid that without bold action and proposals, in tonight's "jobs" address to Congress President Obama will be nailing the lid shut on his re-election chances in 2012

I believe President Obama has failed as president because too many of his policy initiatives have been modified to reflect extreme positions in the right wing.

He has failed to deliver a vision of governance or leadership to the American people and has become little more than an echo chamber for failed GOP economic ideas.

Some speak of his leadership of the American people as a whole.

A very large majority of the American people supported the public option in the health care bill. After a few tepid references to the public option in some early speeches, he never pushed for it - again, what the majority of people wanted.

More than 70% of the American people want tax increases on the richest, and he hasn't even asked for that, much less pushed for it.

It seems as if Obama can't even follow the American people, much less lead them.

I view this as a leadership failure of unprecedented degree.

The majority of American people are shouting for him to stand up to the GOP and become a leader.

This is almost certainly his last chance to do so.

The private sector has not produced job growth over the past 11 years despite tax cuts and deregulation.

I believe that if Obama limits himself to hoping that jobs will mysteriously appear if he and we just continue to embrace GOP policies, to hoping that the private sector will somehow be induced to create jobs through tax cuts, he will have nailed the coffin lid shut on his re-election chances in 2012, because those GOP policies implemented over the past 11 years haven

n't created jobs. More of the same will lead to the same results.