Advice for President Obama on Dealing with the Banks

Max's advice for February 16, 2009

Dear President Obama,

Max grew up as the son of a man who knew 'ALL' the answers to the problems of the world. Max's father said so! Many times, his father let everyone know that anyone who didn't know that he had the answers was a turkey or a knucklehead.

The famous Ma Bell, the second most powerful force in the world (next to God of course), thought so much of Max's father's opinions, that she made him 'Supervisor of Troubles'. This is true!

The advice Max promised you, President Obama.

Return banking to its traditional role!

Max listened to two of the talking heads describe the banks as Zombies eating their patrons (known by politicians as voters). He imagined great granite buildings walking down the street and picking people up to check what was in their wallet. If it was a card from them, the giant granite bank would eat the poor soul whole. If the bank eats too many souls, you, Mr. President lose voters, most of them Democratic.

It was a horrendous scene, but it is happening in a different and more frightening form. The very banks you are giving our money to are socking it away for their executives' golden pension funds. Then these executives are calling in the loans of the voters whose money is funding their future retirement outside continental limits.

Before the Congress permitted banks to play in the stock market, banks were veiwed as places of low risk for average folks. Then one day some greedy Congressmen, fed by generous campaign contributions, changed the rules so that banks could become legalized gambling parlours. They bet the future of the entire nation, and now they need to pay up.

Like all addicted gamblers, the bankers are trying to hit up family (their political family) for funds to keep them from being knocked off. They have succeeded up to now with the claim they need to be saved. They squandered three hundred and fifty billion dollars in only a few months. Now they want you to give them more, no strings attached.

The financial networks are siding with the bankers who they claim are part of "Wall Street" and the stock market.

Your financial people are looking at the problem too closely. They need to step back and stop seeing it as a dollars issue. When banks said they wanted to be able to sell stock instruments in their lobbies, they did not say they were going to sell mortgages in bundles. This marriage of the bank and the stock market needs a divorce. Banks have been trusted since the end of the Depression with the publics money because they were low risk.

Stocks, by the nature of the instrument, have higher risks and in some cases absolute risk of failure. Banks should not be allowed to own stock brokerages any more. Those that cannot prove they are solvent under the law need to be taken by the government. These institutions need to be broken up into banks and brokerages separately.

Solvent banks need to divest themselves of brokerages.

If banks want to allow the sale of stocks inside the bank, they can rent space to brokerages in their lobbies.

This would solve the problem of how much is too much. Banks, prior to the mega banks, paid reasonable salaries comparable to industry in general. They were, after all, low risk ventures. Let them return to paying based on the risk. If the bank is too large to find a suitable candidate to manage it, it should be considered too big and broken down to a low risk manageable size.

What stock brokerages want to pay their people no one should care. As long as they follow the law, let them earn based on the risk and rewards principles.

It is the marriage of a traditionally low safe wage business with a traditionally high wage high risk business that has caused the payments for bank executives to grow.

Those who take high risks need also to be ready to accept the risk of failure. If these banks are truly "Zombies", Mr. President, you should recognize them as failed banks and act as you would if they were the little local bank.

Max wishes you well in your getting up the courage to do the right thing.

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Link one: federal bank evaluations

Link two: federal bank examinations.

Link three: in 2008 what federal banks are permitted to do under law.