Lisa Simpson
Mar 19,2010
In: Finance

If the Economy has to Recover Wall Street has to be Weaned Away from Gambling

If the Economy has to Recover Wall Street has to be Weaned Away from Gambling.

If the economy has to recover then Wall Street would have to be weaned away from its gambling addiction. There was a time when Wall Street provided services to their institutional clients. It assisted these entities to increase their capital by lending and stocks and bonds underwriting. Their assets were managed by Wall Street that provided advice on what to purchase and what not to invest in.

But currently Wall Street resembles a huge and complication gambling den chasing fast profits and doling out huge bonuses. The investment banks of Wall Street make bets with their own funds and also with the money belonging to clients. Often they rake in profits by taking up contradictory stands. For instance recently it has been disclosed that Goldman Sachs was surreptitiously betting against certain mortgage products that in public it was promoting!
To prevent another meltdown it is vital to put back the banking industry, at least in part, to the former position it held. For this purpose the Obama government suggested stopping mega banks from relying on deposits that were backed by the government, from running in-house-hedge-funds and dealing in private equity ventures.

But the latter measures are not the ultimate goal – it just a small part of what should be done. Mega banks have the power to create havoc in more ways than one. It is not always that they can be reined in completely by stopping them from betting on their own funds.

The idea propagated by the former chairperson of the Federal Reserve, Paul Volcker has been dubbed the Volcker Rule. It will be useful. These mega banks are not betting on their own money but also playing games with the money of taxpayers also. It means they are so colossal that their fall would bring down the economy if they are not repeatedly bailed out.
The financial culture of today is plunderous. Any attempt to protect the money of taxpayers from undue risk and exposure is taken to be a threat to gains and bonuses. The financial industry has had the gall to present its stand that in the name of consumer protection it is being subjected to unnecessary regulation. The Los Angeles Times reports that the banks had spent $30 million to lobby in 2009 – it being a spike of 12% from what it had spent in 2008.