Finance Reform

If you have been listening to the news at all the past week or so, you have undoubtedly heard about the Finance Reform Bill that is going through the House and Senate right now. While this is not close to being completed, there are many in this country who view it as a much needed piece of legislation after the near crash of our financial system. Conversely, there are just as many who feel that the bill in its current state is worthless and should be scrapped to begin anew.

Let’s first agree on a couple of points.

• This current economic disaster was really bad on all sorts of levels.
• The taxpayers of this country (you and I) paid way too much money for other people’s poor choices.
• Not much has really changed. That is to say, the financial system works the same today as it did 18 months ago.

The big phrase craze of the day on Capitol Hill for the coining of this bill has been “Too Big Too Fail”, or “TBTF” as it’s being used across the op-ed columns of America. In essence all this fancy little acronym means is that no bank should ever hold so much power that it literally is too big to fail without causing massive consequences to the entire economy. The whole concept of TBTF is a very simplistic principal that I do not think either political party is going to argue about, but how to reform the system to get there sure will be.

Let me take a moment for full and true disclosure. I am not a Democrat or a Republican. I personally think our political system has become a mockery of itself ten times over. That being said, I do not believe in corporate welfare of any kind. Pretty rough coming from a business owner I know, but let’s be real about this. How many small businesses folded, jobs were lost, savings depleted or destroyed due to this crisis? A whole heck of a lot, so I don’t have a ton of sympathy for those who made the poor choices that got us here.

That sounds like I’m for reform right? Well I am, but to a point. I believe it should be a law that we will not bail out banks in the future for making poor loans and high risk deals. Just as I would say the same for any small business owner who practices shady ethics and gets burned. You reap what you sow.

What I do have a problem with is this concept of limiting the size a bank can grow to. There has been a lot of conversation circulating that would force the “megabanks” to break up into smaller, bite size versions, that way they could indeed fail if they had to. My problem with this is I do not see how that actually fixes anything. 

Let’s keep a simple fact in mind for a second if we can.  It wasn’t the size of the banks and insurance companies that caused this mess, but the actions of a group of individuals. In other words, the size was never a problem until greedy unethical people ran them as such. If we don’t deter the behavior, the results will never change. Simply reducing the size of financial institutions without correcting the accountability issue is pretty useless. It might make us feel better, but any bank that goes under is still going to hurt a lot of people.

My greatest fear with all of this though is the scope of the precedent that this bill would create. What are we considering too big? Once it has been decided for the financial sector, what’s to stop it from moving in to other areas as well? Will companies like Wal-Mart and Target suddenly be considered too big and forced to downsize and split up? How about Ford, Chevy, GE and Boeing? How dangerous is it to start putting ceilings on how far a business can grow? Isn’t this the whole point of going into business in the first place?

Look, I am not condoning the actions of those who have caused this conversation. I believe that these people are garbage. I feel for people who have lost so much because of them too. We have to be smart about what we do here. A wrong step too far in either direction will do nothing but cause yet another bubble, with a whole new array of bad policies all over again. That’s my take.

What do you think?

Until Next Time….