Busted: Bankers and The Global Economy

July 26, 2008

More U.S. Banks Close Amid Pain

Friday at the last moment seems to be an FDIC favorite process for dealing with bankrupt financial and banking institutions. The Federal Reserve filed an order for First National Holding Company of Scottsdale, Arizona to cease and desist their actions, while providing certain documentation to the Federal Reserve Board.

The FDIC closed First National Bank of Nevada and First Heritage Bank. The FDIC moved quickly before the situation at the banks became worse, stating that the takeover of the failed banks was the least costly resolution and all depositors, including those with funds in excess of FDIC insurance limits, will switch to Mutual of Omaha with “the full amount of their deposits.” The FDIC has made certain that account holders have full access to their funds with the ability to write checks and make ATM transactions.

Local authorities have warned against the “need” for a bank run as the transition made by the FDIC has been designed as a seamless process.

In the meantime, Swiss-based UBS has been hit up on fraud charges for misrepresenting investments to investors. Inside employees of UBS participated in the essence of insider trading as they divested themselves of the failing securities. The auctions were halted by UBS, resulting in $37 billion lost to city governments, companies and individual investors. Seeing the opportunity for more profit, UBS has offered to lend its customers up to 100 percent of the value of the securities until liquidity of the securities “returns.”

Some lawyers accuse the government of looking for scalps. More big banks are in government cross hairs. This interpretation of “looking for scalps” could be assumed only because the federal government, Federal Reserve and other government bodies have refused to come against securitized loans as the resident evil that they are, including fully acknowledging the role that they played in destroying the banking economy on a global basis.

Now the government, albeit the American people, are on the hook for banker/investor greed because of government warranties and guarantees. However, the argument could be made that government institutions are not liable simply because of their lack of knowledge or perhaps incompetence. Government won’t pony up on the incompetence card. Business does not have any such excuse, deserving to fall fully on its’ face instead of receiving bailouts.

Currently, the government guarantees a huge amount of transactions. Perhaps, it needs to rethink a collective strategy where business, banking and investment are concerned. Protecting investors from risk is not in a government mandate or the job of the American population. Risk management is a function of business. When risk is too high and business fails, investors and speculators should not be protected. They are making the money and when times are tough due to gross mismanagement or bad economic times, the government believes that it must come to the rescue to maintain confidence. For example, the mandate of the FDIC is to protect depositors. Protection of business because of a lack of acumen is not a government function.

Yet, how many ordinary American people would truly be hurt if bankers and speculative investors took their collective hits for bad judgment as they should? This question begs to be asked and should be addressed. The government, nor any other entity should be responsible for insuring speculation unless the speculators are going to pay for real insurance. The government needs to get out of the generic insurance business in an effort to stop everyone’s pain. Is a bankrupt nation nationalizing the banking and finance economy really the answer to peace and prosperity?

Meanwhile, pundits say (almost proudly) that an era of economic dominance by the United States is over. The claim is that the future of money is international. What is not being said is that the risk of investing that money can also grow. Surely the United States government has undermined its own system through lax regulation. At the same time, the opportunity for global investing and wealth building opens up to the masses if they take the option and opportunity. It would appear that, like it or not, we are already living in a new economy.

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