ZeroHedge ran a post from OfTwoMinds today with eight steps to fix the economy. Among the recommendations are requiring all banks to mark MBS, real estate and all other assets to market daily/weekly and imposing massive fines for mark-to-market misrepresentations.
Doing so would mean writing off at least $5.8 trillion of fantasy “value,” most of the nation’s top 25 banks would fail, then the path will finally be clear for renewed growth with a healthy competitive system of 250 small banks. My bank is small, conservative and healthy so I love the idea of us being able to rise up. But is this OfTwoMinds proposal too far fetched?
In short: yes.
The endgame is intriguing from where I sit as a small banker that could benefit, but this would probably shock markets into worse-than-2008 paralysis.
And it’s just not feasible from a political standpoint.
During the heat of economic meltdown in 2008, Obama’s chief of staff Rahm Emanuel said you never want to let a crisis go to waste because crises are when you can do big things.
Big things were certainly done, not the least of which were TARP and QE, but these things were all triage rather than long-term planning.
Meanwhile, the big banks wrote the Dodd Frank Finreg package while Dodd, Frank and all other politicians were scrambling to understand what the hell was going on.
If you think I’m making this up, consider this: In May 2010, when Michael Lewis’ crisis recap book The Big Short was climbing the charts, I saw him speak at a hedge fund conference. He said that chief of staff for Henry Reid and many other lawmakers were showing up at book signings and asking him for meetings so he could help them understand what was going on in markets.
Not that Lewis isn’t a credible guy, but this is truly scary.
And if you still think Finreg was written by politicians who care about American values like allowing small guys to rise up, consider this: I recently learned that one provision of Finreg for the mortgage industry prevents me from simultaneously owning my branch and originating loans for my clients.
But I don’t blame the politicians for it, they’re just bidders for the lobbies they represent. How could they possibly know all the unintended consequences of ideas they get at book signings and Oval Room lunches?
The point is this: big banks will always be able to make smarter, faster moves than politicians. So while I love the idea allowing small firms with clean books to rise up, we have to play by the rules that politicians make. And the politicians are just marionettes run by the big firms. So don’t expect any massive overhaul of the Too Big To Fail machine.
And with that I’ll get back to my honest day’s work. One day at a time is the only way to rise up.