Why Main Street Bank Depositors Should Hold Investment Banks Responsible If Their Banks Fail?

This week Americans may or may not have noticed the way an investment bank tried some third-rate gimmicks to deflect attention from its own sagging fortunes.

Its analyst first downgraded Citi bank. That is understandable - downgrading and upgrading of corporates is their job though it should be based on true fundamentals.

It should not be based on the necessities of deception for covering up one's own possible downgrade by others.

Actually nothing unusual happened with Citi bank in one day to get continuous downgrades after the sub-prime debacle.

And almost all banks may have to show a loss for the next quarter considering the state of economy. It will be all the more difficult if the interest rates go up and make housing financing still inaccessible.

Every mainstreet bank had some exposure to the sub-prime loans and have to write off those losses. Then these are the institutions that come face to face with the average citizen in mortgage deals.

But what was the necessity for investment banks to get involved in the sub-prime loan related crisis?

The average citizen need not be concerned with investments at this time, being burdened with rising debts and dwindling employment prospects.

But he does have a concern when his mainstreet bank where he deposits his salary and wages is recommended for shortsale by another financial institution just for the fun of it or to avoid itself getting under the radar.

Citi bank depositors already know that their bank had some sub-prime difficulties and that their bank had those written off or has allocated funds to write off expected losses.

This is where the analyst of the investment bank committed a sin.

While he had every right to downgrade Citi, he overstepped his limits by asking the public to sell Citi bank shares. Telling his private investors is one thing. Telling the public is another thing. That too to short-sell shares which can play havoc on the depositors' confidence in a bank.

It did play some havoc - Citi's shares fell down within hours.

People who don't dabble in the stock market may wonder what this has to do with them.

Had it been a small bank, that fall would have been enough to start a panic and start lines of depositors knocking on the doors of the bank asking their money back. Luckily for Citi's customers, theirs is a big bank and could withstand the onslaught for now. It has even started downsizing and consolidating its operations to recoup its losses. May be the intention of the analyst was to undermine Citi's latest efforts.

But when investment bank analysts continue their irresponsibly wanton analyses, this may precipitate a downward spiral and a financial crisis that affects ordinary people who have no dealings with them.

If the investment banks do not silence such irresponsible staff who think financial analysis is a videogame of spite and counter-spite and that an MBA in Finance is a license to cook up any rubbish, then SEC should step in to gag these so-called experts who only wants to fish in troubled waters.

It was a big mistake allowing both mainstreet banks and investment banks to trespass into each others' territory. Now what happens in one territory affects the other.

Ultimately, it is the taxpayer's money that is spent when both institutions fail, though it is euphemistically called depositor/investor protection.

Troubled economic waters are we in, definitely. We don't want investment banker-fishermen muddying it up further.