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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

September 16, 2011 at 10:00 AM

Rogue trader, rogue banks

So UBS suffered a $2 billion loss because of a “rogue trader”? That assumes that the big banks are normally engaged in the sober business of assembling capital for productive enterprises that create jobs. They’re not. “Trading” has been their source of big profits for years and is part of the universe of derivative swindles that helped cause the Great Recession and remain with us.

Matt Taibbi of Rolling Stone made the salient points:

But the reality is, the brains of investment bankers by nature are not wired for “client-based” thinking. This is the reason why the Glass-Steagall Act, which kept investment banks and commercial banks separate, was originally passed back in 1933: it just defies common sense to have professional gamblers in charge of stewarding commercial bank accounts.

Investment bankers do not see it as their jobs to tend to the dreary business of making sure Ma and Pa Main Street get their $8.03 in savings account interest every month. Nothing about traditional commercial banking — historically, the dullest of businesses, taking customer deposits and making conservative investments with them in search of a percentage point of profit here and there — turns them on.

In fact, investment bankers by nature have huge appetites for risk, and most of them take pride in being able to sleep at night even when their bets are going the wrong way. If you’re not a person who can doze through a two-hour foot massage while your client (which might be your own bank) is losing ten thousand dollars a minute on some exotic trade you’ve cooked up, then you won’t make it on today’s Wall Street.

There’s a direct line between the repeal of Glass-Steagall in 1999, led by Bill Clinton, Bob Rubin and Phil Gramm, and the near collapse of the financial system in 2008. Yet was deregulation repealed? Were the too-big-to-fail banks broken up and sent back to the dull but vital business of banking? Of course not.

It may be that President Obama tried. A new book by Ron Suskind, the Pulitzer Prize-winning journalist, asserts that Obama wanted to consider dissolving ailing Citigroup, but he was simply ignored by tax-dodging Treasury Secretary Tim Geithner. This would help explain why we didn’t get the real reform promised when taxpayers bailed out the banking system.

I go back to my point about new presidents. Once sworn in, they don’t learn the “truth” about aliens at Roswell or who really killed JFK. They learn that their real bosses are the banksters and other multinational oligarchs. And, as Taibbi writes, “Sooner or later, this is going to blow up in our faces, and it won’t be one lower-level guy with a $2 billion loss we’ll be swallowing. It’ll be the CEO of another rogue firm like Lehman Brothers, and it’ll cost us trillions, not billions.”

The week’s links:

  • Remember that foreclosure crisis? It’s still going on and about to get worse || GOOD
  • Lazy analysis about benefits of passenger rail investment || NARP
  • Understanding the broken jobs machine || Consider the Evidence
  • The European debt crisis in charts || News N Economics
  • Changing social status of Congress shifts policies to the rich || Five Thirty Eight/NYT
  • Economic growth since 1980: The big lie || Seeking Alpha
  • Does Obama have his eyes on the right economic crisis? || Foreign Policy
  • Comments | More in Bailout, Banking

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