Are banks really too big?

The linked video is an interesting and controversial one.

Interesting presentation, but he provided no real solutions to bring to lawmakers. Maybe it was the way he made it sound, but telling a company you are too big or too powerful seems socialist in nature, assuming they have not broken any anti-trust laws (which none of these banks currently have).

Competition is still alive and well right now in the financial marketplace. He claims that the banks have gotten bigger due to risk-taking, but in reality, the ability to purchase cheaper, undervalued assets has contributed to higher earnings. In conjunction, the Fed's maintenance of all-time low interest rates allows them to borrow for cheaper than they can lend, in a sensible way.

If people want to support the breakup of Goldman, then why not other large corporations such as Walmart? Also, this seems to become a slippery slope. Who decides or distinguishes what banks or corporations are too big to fail?

Goldman actually sold off one of its key trading divisions to KKR not long ago. I suspect other banks will follow.

The speaker was dead on about the poor compensation structure, however. It's not necessarily the size of the bonuses, as how they are obtained (i.e. reward for risk). If employees of any corporation are properly compensated with decisions that favor long-term sustainability and growth of the organization, then reward amounts and bonuses are not going to be a major issue in the future.

I'll step off the soapbox now.

More trouble for the U.S. Dollar?

Recently, the FED has substantially cut rates in response to the growing recession fears that have spread into the minds of more academics and economists. Although the possibility of a recession is no small matter, the FED has seemingly ignored another major problem facing our economy and financial well-being.

Our US Dollar has resumed its downfall against other major world currencies, most importantly the Yen and Euro. After a mid-December rally, the USD has plunged to new lows again compared against both currencies. Despite a global credit crunch and recession worries in Asia and Europe, the FED typically acts most rapidly and decisively when problems arise. On this positive note, we can expect the other central banks to begin cutting rates sometime later in the year as a more reactionary measure instead of a combination between reaction and precaution. Asian growth is still expected to maintain, but interest rates have risen to unhealthy levels. Meanwhile, Europe seems a few months behind the US economy in the GDP cycle, so slower growth may not be realized until the late 3rd or early 4th quarter of this year.





One solution to the falling value of the Dollar the FED has yet to utilize is the mop up of excess money floating around throughout the economy. Unfortunately for the US central banking arm, excess liquidity has been necessary in a marketplace stricken with tightening credit standards and loan requirements. As the financial sector continues to right itself (with the help of much needed investment from the private sector and abroad), the FED may begin to start diminishing some of this exorbitant amount of dollars. Hence, less supply will help drive the USD's value back in the right direction.

Was Jerome Kerviel a man "without any particular genius"?

Within the past week, Jerome Kerviel changed the landscape and mindset of the financial world. According to the article from the Tribune Company, Kerviel is responsible for a whopping $7.14 Billion in losses incurred by French megabank Societe Generale. Although everyone's initial shock stems from the monetary value Kerviel cost his employer (not surprising considering the value), I was left in awe when reading about the ease and amount of transactions involved in his illegal actions.

For Societe Generale to comment on Kerviel as a "fragile person...without any particular genius" really worries me. Is this French bank so arrogant that they fail to believe he truly profited at any time from his illegal trading (which they also stated)? Are those at the top so stubborn to give Kerviel any credit for defrauding their organization for the largest amount in history? Or are those executives at Societe Generale telling us something else?

In an updated article, the bank claims he "hacked computers and "combined several fraudulent methods". How easy is this system to hack? If Kerviel was truly a man "without any particular genius," can we expect thousands of computer wizards to flock to investment banks in search of a trading position, which they will be able to use to extort or defraud massive amount of money? Are these banks, supposedly with the top computer security in the world (save national governments and agencies) really that safe?

Societe Generale might want to start a company-wide investigation, quick. Ditto for the rest of the banks. Because if Kerviel is just a normal guy with average intelligence and knowledge of his field and the trading system, this won't be the last case we see of this nature in near future.

Privatized Social Security?

Recently, Republican Presidential Candidate Fred Thompson has become outspoken on the Social Security issue. In one of the rare cases where a politician musters up enough courage to discuss one of the premier dilemmas facing American society, Thompson seems to be on the right track. Instead of relying on increasing taxes in order to boost account values like Senator Clinton has suggested, Thompson began talk of privatizing Social Security and allowing individual Americans to save their money as they so chose via an investment vehicle (likely a 401(k) or something similar).

When asked his main thoughts behind the process, Thompson replied with a refreshing remark. "The American people are smart", said Thompson reflecting on U.S. citizen's abilities to invest themselves. How about that? A politician that has faith in the American people to choose and dictate their own prosperous future.

Contrast Thompson's pro-individual comments to those of Hilary Clinton's latest speech, in which she mandated, "When I am president, we'll have our priorities in order. We will return to fiscal responsibility and fair tax policies first, and then we will address the long-term challenges facing Social Security."

With an overwhelming lead in the Democratic Primary's early polls, I worry for the country with her pro-tax hike mentality, something a fragile economy wouldn't take kindly to. What happened to the pro-growth Democrats like Kennedy? Maybe Hilary should consult someone with experience in the position, someone who understood that tax hikes were detrimental to the economy. Say her husband, Bill.