David Korten: Bankers, Bookies, and Gamblers

[marmar]

via CommonDreams:




Published on Saturday, September 4, 2010 by YES! Magazine
Bankers, Bookies, and Gamblers

by David Korten


As they say, to get the right answer you have to ask the right question. I'm stunned by how often news reports on Wall Street ask the wrong question, as do our politicians. The August 26, 2010, New York Times front page story "Despite Reform, Banks Have Room for Risky Deals" is a case in point.

The article centers on the Volcker Rule provision of the new financial regulation legislation that "sought to prevent federally insured banks from making speculative bets using their own money." The legislation seems to presume that it is OK for banks to serve as bookies who set the odds and hold bets for gamblers (euphemistically referred to in the article as investors) so long as the banks don't put their own money in play.

The main point of the article is that the big Wall Street banks have difficulty making this distinction, because when they accept a bet for which there is no counterparty, they are actually making the counter bet themselves, i.e., assuming the risk by betting against the client. It becomes more than a little awkward when they are loaning the gambler the money used to place the bet in the first place-thus in effect betting against themselves.

Then add in the fact that these same banks get cheap credit from the Federal Reserve, their depositors are federally insured, and the federal government feels compelled to step in and bail them out when their bets go badly wrong. The result is an impossible web of conflicting interests that Wall Street bankers are highly skilled at turning to their personal advantage.

The implicit question addressed in the article is, "Should banks be allowed to gamble with their own money?" This question has been a subject of extensive debate in Washington and in the press. The question we should be asking is, "What is the proper role and social function of a bank?" ...........(more)

The complete piece is at: http://www.commondreams.org/view/2010/09/04-0

[dixiegrrrrl]

1. "Should banks be allowed to gamble with OUR money"

should be the question.
which does indeed lead to : "What is the proper role and social function of a bank?"