Agreed that a "sound" banking system is vital to the US economy... Then why the Hell are they allowed/REQUIRED to make poor quality loans and to use excessive leverage? What do regulators actually do? Sit around all day with their thumbs up their butt??
gnome, you are much smarter than that, and I assume you said that for the sake of conversation. I'll bite. Lending leverage works well for the banker's profit until the borrowers cash out more money than there is in the vault. I only wish I could use the same theory with time, and sell 64 hours per day when I only have 8! The only other professions I know of that get away with that are law, accounting and government.
I'm sure even my 3-legged mutt is smarter than that... and it was a rhetorical question. But if the banks are THAT important (and they are) the regulators should make sure they do solid business practices... that is, qualified borrowers, properly underwritten loans and terms, conservative capital requirements... that way the likelihood of their getting into this kind of mess would be minimized. What has anyone learned? RTC in the late 80's, LTCM in late 90's, now THIS! All because of banks' (and politico's) greed and overleverage. Don't we EVER glean anything from history*? And such recent history at that! *Another rhetorical question... unless of course the plan all along was "Go ahead and lever your brains out. If it all blows up, the taxpayer will be tapped to foot the bill when necessary."....
If you mean "we" the voting citizens, no, we never learn. Ever since electronic media, attention spans and memories have fallen by factors of ten. The taxpayers are already footing the bill, by default. Every government-backed debt instrument, promise and contract is backed by "the full faith and credit" of the taxpayer. That means you. The bills for whatever they charge on their limitless Visa cards come to you via a 1040. You have no say over what they buy or even if it is needed... we do not enjoy the possession of what is purchased, but we are stuck up the ass with the right of paying for it all.
I was thinking of the Legislature and bank regulators... THEY are the ones who should set limits on how risky of practices banks can be engaged in and how much leverage... if we taxpayers are going to be ultimately liable for their mistakes.
I hold the unpopular view that banks should have zero accountability to/control by government (except via courts, laissez faire, meaning an educated public not too busy to actually READ), but all accountability to their depositors (read: tighter credit, more savings, lower interest rates, competition), that the free market should determine which bank dies and which grows, that the Federal Reserve is no more than a shell game of the wealthy and should be summarily cut out of the loop in the same day as the IRS, that Central banks can provide all needed liquidity for member banks who wish their deposits to be held off-site, and that those in money and power have the future quite well mapped out as to increase their money and power, with the taxpayers being entertained by a game of cat-and-mouse, sufficiently designed to avoid 99% of the confrontation that might otherwise come through an informed populus; the game is electronic media, fought nowhere but in the brains of those who pay for the game, the winners and losers, without so much as a whimper. I recall that the Boston tea party was a revolt over a tax of two percent. Where have our balls gone? That said, it's time for a huge cheeseburger and a small bucket of thick fries.