There is a funny little guy in Altamont who is a fire marshal. He comes around to our office every so often to make sure we are not going to burn the place down. He’s built like a fire plug and grew up in Scotland, so he has a great accent. You almost expect him to say something like “No fire hazards in here, laddie!” And while it’s fun to see him, I also appreciate what he is doing. Sure, there is a fire station right down the street if we need it, but it is better for everyone if we don’t start a fire in the first place.
We generally accept that, when we build a building, there will be regulations for us to follow. As long as a public building is occupied, it will be subject to inspection. If I am the 23,586th person to show up at the Jonas Brothers show in the venue that holds 23,585, tough luck for me and the guy who wants to sell me a ticket. It’s just not safe. Why, then, do we not expect the same level of preventative guidelines when it comes to banks?
The Financial Securities Modernization Act, passed under President Clinton in 1999, allowed banks to invest their assets in risky stocks and bonds. Prior to that, the banks that most of us use for our personal checking and which provide the structure on which most other activities in 0ur communities are done, were prevented from taking risks with their assets. A Depression-era law built firewalls between the essential services that banks provide and the risky investments some might want to make. The removal of that wall seems to have resulted in a 700 billion alarm fire.
I keep wondering why, when B. Frank is talking about consolidated regulatory blah blah blah, nobody has said “hey, let’s put that firewall back up!” Turns out, former Fed Chair Paul Volcker (he was Greenspan before Greenspan was cool) has been saying this very thing. No one much seems to be listening. “Oh, Paul, you are just so old fashioned. You with your 6 foot 8 inch frame and Sith lord sounding name.” It must be hard to pat someone that tall on the head. Maybe they wait until he sits.
Seriously, what’s the problem here? The claim is that we can’t be competitive without opening these opportunities. I’d argue that it is hard to be competitive when the whole system burns down. I’m fine with taking the responsibility of putting out the fire. The Federal Reserve and the Treasury should, in emergencies, be the fire fighters and do what it takes to quench the flames. But as we look at rebuilding financial structures in this country, we should require those structures to be built to a code which protects the whole community. Maybe if Paul Volker were a Scottish midget we would listen to him.