Bankers Are Not Rock Stars

Personally, I don't understand why anyone thinks any of the types of derivatives that have been created and traded over the last twenty years by Wall Street masterminds are vital to the financial system or markets. The country got along just fine without them for a very long time. Their only reason for being today is to allow traders to make outrageous amounts of money while destroying a nation's financial system.

The root of the problem is that bankers wanted to make rock star, professional athlete and hedge fund manager type money even though conventional banking is the easiest business there is. A traditional bankers job is to lend money to creditworthy entities at higher rates than they pay depositors on checking and savings accounts. Not too tough if one applies a little credit analysis to the borrowers.

But bankers wanted to be able to take higher risks so they could make more money, which is why they lobbied to repeal the Glass-Steagall Act legislated during the Depression of the 1930's. They wanted to be in the same businesses as Merrill Lynch, Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns. Remember that less than five years ago none of those firms were banks. The bankers also wanted to engage in the even higher risk, higher potential return game of proprietary trading of derivatives and other lucrative but pointless securities. They succeeded with the enactment of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999.

Sure enough, less than ten years later the whole system collapsed. Lehman Brothers went bankrupt, Merrill Lynch was acquired by Bank of America, and Bear Stearns was acquired by JPMorgan Chase. Goldman Sachs and Morgan Stanley changed their charters in 2008 to become bank holding companies, primarily so they could participate in the bailout cash being handed out by the government.

My first job after graduation from college in 1971 was in a bank, one that stuck to the basics of attracting deposits, making personal, commercial and industrial loans, and providing trust services. Only the CEO made as much money then as the average bank employee does today. It was not a high paying profession because it didn't need to be.

Banks provide a vital service in the functioning of the financial system, one that must be conducted conservatively. They don't need to be in the investment banking, securities brokerage, insurance or proprietary trading businesses. The Volcker Bill now being debated in Congress would preclude banks from conducting those higher risk businesses, and must be passed so we can all live happily ever after - except maybe the bankers who may not make the six and seven figure compensation packages they ludicrously believe they deserve. If someone's primary goal in life is to make the big bucks playing mindless trading games, then they should seek employment with firms operating in the high risk businesses, not banks. Banks are too important to the efficient operation of the financial system to be gambling with depositors, shareholders, and unfortunately today, taxpayers money.