Reply #67: I'm beginning to get a crush on Eric Fry!

[Demeter]

http://dailyreckoning.com/the-goldman-sachs-phenomenon/

This isn't complex stuff, folks. If the Treasury Secretary sincerely wished to clean up and re-regulate the banking system, his new regulations would only require about 50 words:

1. No officer of any publicly traded financial institution may receive more than $10 million per year in total compensation.
2. No financial institution may borrow more than $10 for every one dollar of readily marketable assets (i.e. "Level I" assets) on its balance sheet.
3. No financial institution may incur any liabilities "off-balance sheet."
4. No exceptions.

Implement these regulations and you would have forever eradicated the DNA of financial catastrophe from the American financial system.

But what would critics say about such "draconian" new regulations? (We'll call these regulations the "Level Playing Field Act of 2008.") After choking on their foie gras, they would probably protest, "That's not nearly enough compensation for top officers! You'd lose the top talent!" Then they would protest: "What! No off-balance sheet financing? Are you crazy? That's where all the juice is! You would lose the ability to ramp up return on equity!"

To which we would reply: "Hallelujah!" and "Amen!"... Finally, we could purge the financial system of all the "talent" that has delivered America's most severe credit crisis since the Great Depression. Finally we could purge the system of the "creative" leverage that the "talent" has amassed over the last several years. Finally, we'd have a banking system that would operate like one - a banking system that would provide capital to entrepreneurial endeavors, rather than to catastrophic speculations.

The American financial system does not need "talent" and "creativity." It needs prudence and perspicacity. It does not need creative bankers. It needs dull bankers.


Why? Because the American financial system needs to safeguard its capacity to finance creative and talented entrepreneurs. It needs to safeguard its capacity to preserve the purchasing power of our currency and to safeguard the legendary America capacity to create wealth from the bottom-up, not to destroy wealth from the top-down.

But the American financial system still possesses too much talent and creativity to operate prudently. In fact, Ben Bernanke and Hank Paulson may be the most creative finance officials in American history.

Consider yourselves forewarned!

Eric J. Fry