One of the biggest obstacles holding back our economic recovery is the burden of regulation, particularly on our financial companies, who will be less able to innovate and help grow the economy. What we need is bank deregulation now.
In May, JPMorgan revealed a $2 billion trading loss in its London office (the calculation of the loss has since risen slightly to $5.8 billion). The media and anti-capitalist Obama administration went ballistic. One NPR commentator even described it as, and I paraphrase, “American depositors give their money to JPMorgan, who ships it off to London to gamble with it and when they lose, the American taxpayers make up the difference to the depositors.” And while it is true that the banking boom of the early 2000’s led to the bust in 2007-2008, requiring taxpayers to bail out the banks during the waning days of the Bush administration, a bailout that conservatives still hold against the Obama administration, in this case Rush Limbaugh has it correct when he insists that losing is a part of capitalism (Limbaugh rushes to defend JPMorgan). Seconding Rush, Mitt Romney defended JPMorgan saying that it was not taxpayers, but investors, who lost, that this was the normal course of business, and we shouldn’t let regulations get in the way.
Even if the socialists argue that it was the taxpayers who bailed out Wall Street in 2008, that is only because of the improper role of government in regulating finance in the first place. If we removed the moral hazard which is the FDIC and deposit insurance, then the market, through the millions of citizens who would evaluate the strength of individual banks and stay with the strong while the weak went under, we wouldn’t need to involve taxpayers in bailing out the banks in the first place.
Anti-capitalist hysteria has reached a new height in the case of HSBC, the global banking giant. A Senate subcommittee is again getting in the way of letting banks do what they do best by investigating suspicious transactions linked to drug cartels and terrorist groups. It is not the role of government to protect the citizenry from drugs and terrorists by regulating the banks.
And then the Libor scandal. There, banks misreported the interest at which they were able to borrow money, and this incorrect rate was used to set rates on $800 trillion worth of financial instruments, an amount which is barely 50 times larger than the US National Debt. Two things are of interest. One, the banks often reported they could borrow at a lower rate than was the case, so in fact consumers saved on their loans; it is only investors who might lose out by being tricked that the bank was more sound than it really was, and continuing to invest in it. Second, the real culprit in the scandal is, again, socialist government and the Obama administration. As The Lonely Conservative notes (Tim Geithner Tied to LIBOR Banking Scandal), then Federal Reserve president, now Treasury Secretary Timothy Geitner, as far back as June of 2008, sent a memo to the Bank of England calling for changes to make it harder for banks to rig the benchmark. As the Lonely Conservative so scathingly puts it, Timothy Geitner is “up to his eyeballs” warning against “the private manipulation of financial data for profit.”
We need bank deregulation now!