One of the most frustrating parts of the recent financial crisis has been the total loss of mission on the part of the financial sector. Often when I hear this discussed, it is in terms of how bankers lost sight of reliable long-term profits in lieu of flashy short-term profits. In other words, its all about the profits. But making profits is not what banks are for. If you are a banker, you may disagree with this. And perhaps bankers are for making profits, or many of them anyway.
Banks, though, are for facilitating the work of the economy. I want to sit in the coffee shop all day and all of the night. I will eat brownies and blog, no problem. My blogging gives me a thrill, but my blogging won’t pay my bills. It won’t even cover the brownie. I could work directly for the baker, but she is better at brownies than I am. So, I work on things I’m better at for someone else who needs them. They don’t have brownies there, however, so they have to give me something else I value in exchange for my time.
These are nice people and don’t want to guess my waist size, so instead they give me money: a marker of the value of my time that comes from a (tah dah) bank. The Federal Reserve Bank to be exact, but that is not important right now. What is important is that I can then take my marker of time value and get a brownie with it. Of course, banks do a lot more than this to help the economy work, but that is the basis of everything else. Banks, therefore, exist to serve the broader economy and we thank the bankers for their service by paying them money.
I would no more go to a bank that did not serve my needs than I would buy a toaster I did not need or would not use. Toaster makers whose toasters do not get used are not succeeding in their purpose. (Sure, they might make money for a short while, but then a bunch of people are stuck with toasters and the company is finished.) No, common sense dictates that the toaster has to get used, and a toaster maker who does not want his product to get used must be a miserable toaster maker. How much more satisfying to know that your toasters help people get needed complex carbohydrates every morning while allowing you to be maintained in the manner to which you have grown accustomed?
So, the point is (in case you doubted I would get there) that if the argument against certain types of regulation in the financial industry is that it will restrict “innovation” by which I understand people to be saying “new ways for bankers to make bank,” well, tough. If financial regulation will allow the banks to be more trusted, and therefore more used, by the broader economy, then super fabuloso. Financial regulations which neither allow innovation nor increase confidence but simply serve political expediency are crap. But until the financial sector can keep itself focused on the goal of expediting the functions of the broader economy, I’m all for giving it some help to stay focused.