Subject Banks to the Free Market or Turn Them into Utilities

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Let's face it. Banking is a protected industry. It's a government-coddled industry.

The problem with that is, banks really aren't subject to free market forces that would naturally eliminate insolvent and inefficient institutions. The result is more bad banking.

If we ever want to free ourselves from the yoke of czarist money-changers and free up capital to flow into and throughout the economy, we must subject all banks, and all financial institutions, to free market forces so the weak ones fail and the strong survive.

How do we that?

It's easy. We remove the rocks under which banks hide by making all banks' (including the U.S. Federal Reserve) books and records transparent with a one-month lag. While we're at it, why not legislate the same rule for all regulatory bodies? They are supposed to be protecting us, after all, so what's there to hide?

(Speaking of transparency, it wouldn't be a bad idea to stop members of Congress from trading stocks that are directly affected by pending legislation. More on that here.)

And, if that's not a palatable option for bankers used to being sheltered, we should give them the ultimate protection they demand and simply turn them into utilities, along with the transparency that comes with it.

Let me make this simple.

If banks get into trouble and have to borrow huge amounts from each other, or have to borrow from the Federal Reserve – either from its discount window, through swap lines, or through any of the other central bank liquidity provision programs currently available – we should know about it. I suggest a one-month lag before that information is released because that's all the time they should be given to fix themselves.

If the banks are so important to the economy that they have to be given massive liquidity and regulatory cover to right themselves when they are in danger of sinking, then the financial system is nothing more than the clever rhetoric of an ensconced oligopoly manifesting its power.

If we had "one-month transparency," and faltering institutions were clearly identifiable, their stockholders would jump ship, their debt holders would man lifeboats, and unless the institution could be saved from free market destruction by the free market intervention of risk-takers willing to saddle themselves with personal exposure, they would fail.

Look through the bankers' rhetoric that they need protection and cover from public scrutiny, and what do you see? You see inefficient institutions that leverage themselves for profit, get bailed out, merged, and recapitalized by an unsuspecting public that's been duped into believing bank CEOs, regulators, and the Fed that everything is fine — or will be with time.

Who cares if banks fail before they get too big to have to be bailed out, or too big to be systemically threatening? We all should care. They should be allowed to fail.

And the sooner the better.

If that's not a palatable solution for the industry, then why don't we treat banking like we do utilities? After all, that's what banks are. They are utilities – although their profits are not capped, nor is their leverage, nor is the disaster they can wreak on all of us.

Fixing America, and the world for that matter, isn't complex. It's just hard because banks control us, not the other way around.

The only way to get around the global banking cabal is to dismantle all the too-big-to-fail banks everywhere and let the world see what's on every bank's books. Let the world see how leveraged they are, how much they have to borrow to cover holes in their balance sheets and their capital reserves, and make all regulators findings, admonishments and help known to the public fairly immediately.

Transparency is next to godliness, even if you don't believe in God.

[Editor's Note: If you're fed up with the rampant corruption, double-dealing, and protection of Wall Street by Washington (at the expense of the taxpayers on America's Main Street), then you need to read Shah Gilani's Wall Street Insights & Indictments newsletter. As a retired hedge-fund manager, Gilani has firsthand knowledge of the strengths and weaknesses of our financial system. But unlike most insiders, he's not afraid to share that knowledge with the public. That's why his new newsletter has been such a hit. In fact, we've never seen such an overwhelming response to a free service. But don't take our word for it, click here to sign up and find out for yourself.]

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. Observer | December 15, 2011

    Shah is dead right about banks being treated like utilities. I had never thought of it that way but once someone says it goes through your senses like a flash of light. A century ago the problem was cartels and trusts that had a stranglehold on our country. A courageous president named Theodore Roosevelt went at them like a mad dog and saved us. We need a president who will bust up the banks, especially Goldman Sacs!

  2. Eshteban | December 15, 2011

    I absolutely agree! Even without knowing the exact impact it would have for banks to be allowed to fail, I am more than confident such an impact would be much less devastating than if this process of bailing out and ricapitalization keeps going. Sooner or later the "bailing out budget" will run over. What about then?

  3. Mike | December 15, 2011

    Yes, Shah, I'm with you on all of this. If banks only exist under a veil of self-aggrandizing secrecy and controlled "scrutiny", then where does that leave all the rest of us who have to depend upon them?? Screwed . . . that's where. The run-of-the-mill taxpayer has paid way to much to support these would-be indispensable corporate behemoths. I'm with you . . . let 'em fail. That's what so many Joe C Schmucks in this economy that is tipped so profoundly in the favor of the elitists have had to do . . . fail. Why not the banks. Then maybe we'll get some proper and good regulation of these shadowy conglomerates.

  4. Chris | December 15, 2011

    Amen and hallelujah !!!! It's about time common sense was injected to this scam. I love the public utilities idea, it never occurred to me.

  5. Lord Bedlam | December 15, 2011

    Shah,

    You speak as if history has taught us no lessons of the banking industry. Let's look back in history, start with Oct. 24, 1929; or if you prefer something closer to the 21st century, look back at the subprime mortgage crisis.

    http://wp.me/p1qDpl-ex

  6. Jeff | December 15, 2011

    Add to what's stated that finance should be allowed only to the extent that it supports real production; Finance must not be allowed to be an end in and of itself. This would help minimize bubbles and financial crises as people would not be allowed to use tomorrow's income for speculation today. The system must be engineered toward sustainability and that includes relegating borrowing to a last resort.

  7. John | December 15, 2011

    The solution, as Shah says, is clear, but it's never going to be implemented. Why? Because the corrupt banking system we've had imposed on us for 200-odd years now (under the tutelage of the Rothschilds) has all the Western governments in its grip. They have sufficient money (even gold, if the politicians don't want to be paid with printed toilet-paper dollars), to corrupt any officials we might elect to office, with the aim of maintaining their hold on power.
    Sadly, there's only one way to rid ourselves of these parasites. When there exists a class which think they are born to rule the rest of us (be they called Cabalists, Monarchs, Democratically-elected Representatives, whatever), they will never surrender power voluntarily. This is in contrast to the rest of society, who surrender power for the promise of a free lunch, and are basically non-violent. The bankers have always understood the need for violence on a massive scale, so they can get repaid when nations default on debts, by financing another nation to make war on the debtor nation.
    Blood is all they understand, and that is how the world will ever be rid of them. It won't be a once-off either: lusters-after-power will always be with us, and will always have to be eventually curtailed by force. It's just part of human nature that some people can't live-and-let-live.
    Eventually, it may come to be generally realized that those who seek power, via subterfuge, force, or election, are ipso facto psychologically unsuited for office. At that stage, we may be wise enough to institute some form of government along the lines of jury-service, where the administrators serve for a short period, without extra pay or perks, before returning to their normal occupations, and without the power to make laws relating to the economy (for the same reasons they wouldn't be able to make laws relating to religion). Their remit would be to prosecute crimes of fraud, violence, theft etc, and to deal with the defense of the country, nothing more.

  8. wren | December 15, 2011

    Segregation of " banking" from"risk and leverage" would help define the business. FDIC would have minimal exposure to the fools that have run the sector into a ditch, and true risk investors could control their own exposure.
    Lawmakers need to rescind the law that caused lenders to loan to unqualified borrowers.

  9. ralph johnson | December 16, 2011

    it'a not enough I have to help "pay" others mortgages that they should not have reiceved, i also have to bail out and pay for the greedy yet stupid banksters ……Shah-great perspective-I think Stalin said re: the effectiveness of capital punishment (vis-a-vis here to refer to ultimate punishment for errnant "banking" risk practices) lies not in its severity but its certainty to happen…..believe me-if bankers could actually fail,lose their bonus or their job or even the whole firm- they wouldnt evolved into nearly a stupid "investor"……really neat how they're all for freedom of free market forces and less regulation…..unless,of course, they screw up big…THEN they need government help…..

  10. Nelson Merritt | December 28, 2011

    Banks don't have to fail. Just define their purpose and see that they stick to it. What are they, banks or gambling houses? They are banks! Banks provide safe places for private and business entities to put money and get interest; they lend money so people can buy houses, businesses can build factories. Provide reserve limits and government FDIC insurance. The failure comes in when super greedy people want unreasonable bonuses that requre gambling and not banking. If they want to gamble, then don't bank. It's simple enough! Citi gambled its depositors' money after good old Phil Graham got the law changed. Crooked and unwise , but opportune for a lot of people to make scads of money. Opportune for a lot of other innocents to loose a lot. Was there any conscience in old Phil Graham? And how about the leaders of his party? Was there any conscience there? Phil, old Buddy, "Do you know what you are doing?"
    Stupid and greedy! Mfake a few bucks an hurt a lot of other people!

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