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September 4, 2011

Barking Up the Wrong Tree

Hyperbole has its place, but it’s often used as a smokescreen to hide the truth, to distract from the truth or as the last yelp of a wounded animal.  All three apply to the headlines out of the UK today where head of the biggest business lobby group said it would be “barking mad” to implement what are expected to be the bank reform recommendations of the Independent Commission on Banking (also referred to as the Vickers Commission). (Read here)

Now, of course, the lobbyist wasn’t saying that because he was trying to protect bank profits or lines of business or outrageous CEO pay or any such selfish motivations.  No, no, no.  He was only worried about the fragile economy and how those bank reforms might crimp lending and therefore hurt the economic recovery.  After all, all bankers and businessmen really care about is solving unemployment and ensuring that the economy hums along.  

Talk about barking up the wrong tree!  

UK taxpayers have already had to bail out their banking sector at obscene levels and yet UK bank assets are reported to still be 4 times the size of the UK GDP.  That means, if strong and effective regulations aren’t put in place and the banks return to their reckless ways (and why wouldn’t they without regulations), then there are only going to be more taxpayer funded bailouts.  

That is precisely what the bank reforms are designed to prevent.  As FT reported, “The commission, led by Sir John Vickers, will recommend that UK banks place ringfences around their retail operations in order to make banks that combine high street lending with higher-risk investment banking under the same roof less of a systemic danger to the taxpayer and the economy.”  That doesn’t sound so mad.  In fact, it sounds pretty sensible, responsible and measured.  

If anyone should be barking mad, it is the taxpayers in the UK, the US and everywhere else who got stuck with the bill for the last bailouts and will get stuck with the bill for the next bailouts of a financial sector that still doesn’t get it. 



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