Suppose you are a teenager. Suppose you are a rich teenager and one who is also spoiled and ill-behaved.
Suppose you bend the rules continually, stretch the truth and put other people in harm’s way. Suppose you cheat your fellows with no compunction and don’t care about the consequences of your actions.
Your only concern is for your own welfare. In fact, you have absolutely no regard for anyone you use or damage through your selfish and wayward manner.
Every once in a while, you get caught by your father for your egregious conduct and threatened with punishment. But you’ve been through this before, and you know the penalties will never come.
You know that the threats are empty and that his bombast is just for show. Besides, your mother has got your back and grandfather’s trust fund is inviolable.
So whatever distress or injury you cause, you will never be bereft. Whatever money you squander will be resupplied endlessly. There’s no need to worry, and just as important, no real incentive to change your behavior. You are free to be who you are.
Megabanks Given Carte Blanche
Now suppose you are a megabank, one of the nation’s 12 largest. Your assets can range anywhere from $250 billion to $2.3 trillion. And even though you and your 11 mates account for only 0.2 percent of the 5,600 commercial banking institutions in the country, you hold almost 70 percent of all industry assets.
Even better: A decade ago, you were allowed to gamble with all that money when your friends in Washington, D.C. — the ones who always have had your back — repealed a 70-year-old law that had restricted your speculative nature. Now the floodgates are open. You are free to be who you are.
So you go on a spree. You invest, you leverage, you create all sorts of sophisticated and enigmatic financial products, you make bets, you take bets, you bet against the bets you make yourself. You invite other people into your game and get them to give you their money with inflated promises and jigged numbers.
You bend some rules, stretch the truth and put a lot of people in harm’s way.
But you rigged the system so that you don’t have to fear the consequences of your actions. Even if you do get caught, you will be bailed out. Whatever money you squander will be resupplied endlessly, because you’re just too big to fail.
There’s no need to worry, and just as important, no real incentive to change your behavior.
Bad Behavior Goes Unpunished
Is the metaphor too far-fetched? Perhaps. But in both cases there is bad — even illegal — behavior, which not only goes unpunished but also has every motivation and rationale to repeat itself.
The trust-fund teen never gets grounded and never puts the brakes on his hedonistic spending habits. Essentially, there are no sticks – only carrots. And human nature being what it is, it will go for the carrots every time.
The country’s largest banks have not given up a single miscreant CEO to the penal system, and with their bailed-out funds as ante, have all managed to thrive again while the rest of the country is still stalled in the economic doldrums.
And the financial overhaul that ostensibly was created by Congress in the Dodd-Frank legislation to guarantee that taxpayers won’t have to come to their rescue again — if and when their bad-boy behavior resumes — is largely viewed by the banks themselves as porous and ineffectual.
So, again, no sticks. And human nature being what it is. . . .
A Federal Reserve Banker Points out the Problem
Oddly enough, this view is one held by one of the big banks’ own: Richard W. Fisher, president of the Federal Reserve Bank of Dallas. In a speech last week in Washington, D.C., Fisher called for the chopping up of the big banks so that none of them again could endanger the country’s financial system or put taxpayers on the hook for a bailout.
Fisher’s argument is that the megabanks enjoy a number of privileges:
- Access to lower borrowing costs than the rest of the country’s banking institutions.
- A federal safety net should they fail.
- An ability to withstand policing from regulators and scrutiny from their shareholders.
It is these perks, he argues, that make it all too likely that the megabanks will retreat back into recklessness.
Metaphorically, Fisher made the case for mincing up their credit cards, taking away the keys to the Porsche and pulling the plug on granddaddy’s bequest. He understands that in lieu of any other workable alternatives to deter junior’s offensive activities, sometimes cutting him down to size is the only way to save him from himself.
And the rest of us from him.
What Will Congress Do?
Does Fisher believe Congress will act on his suggestion? He says reasonable liberals and conservatives will warm to his plan.
But what if junior’s friends in the Capitol are just as rich, spoiled and selfish as he is, with no reason to challenge the primacy of the megabanks, who, in most cases, are their biggest campaign contributors?
In that case, we should all get ready for another teenage binge – and be prepared to clean up the mess they leave behind.
After all, human nature, being what it is …
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].