Custom Search

Monday, April 26, 2010

Derivative Bank Reform

The financial institutions of this country are in a shambles due to poor choices by the nations banking institutions. If you look at small town banks that invest in the local community then you don’t see a problem. When you look at nationwide banks then you see a problem simply because they forgot the original mission of the bank. Sitting on a large pile of cash, yours and mine, they figured it was okay to gamble with it on Wall Street using one tool called derivatives.

What is a derivative you might ask yourself? It is for all intents and purposes a lottery ticket, a throw at the craps table, or a bet. By definition according to Wikipidia…

“A derivative is a financial instrument (or more simply, an agreement between two people/two parties) that has a value determined by the future price of something else. Derivatives can be thought of as bets on the price of something. Suppose you bet with your friend on the price of a bushel of corn. If the price in one year is less than $3 your friend pays you $1. If the price is more than $3 you pay your friend $1. Thus, the underlying in the agreement is the price of corn and the value of the agreement to you depends on that underlying.”

Republican opposition to such reform is outlandish in the face of so many banks that needed the Treasury to bail them out of the financial mess they were in. Banks became lazy and greedy for ever growing easier profits from Wall Street rather than focusing on the business model they started with. Greed lead to more greed and greater risk to not only the bank but individual account holders and that was the downfall of many of the institutions that Republican leaders wanted to not bail out to begin with? Which way do the Republican’s want the pendulum to swing? Our nation is at a catch 22 with some of the biggest banks and financial institutions; if they fail, they will take the nation down with them. We bailed them out when they went to Vegas and now it is time to tell those same banks that they have a gambling problem. It is called and intervention to prevent future bail outs!

Is common sense dead over on the right side of the aisle? If banking institutions are going to belly up to the bar for bailout money because greed superseded simple banking business rule of thumb, then they need big brother telling them that playing the lottery with other peoples money is not going to happen. Quarterly profits should not override common sense when it comes to banking institutions.

Is your bank playing with derivatives? If so, are you sure the check for your electric bill is going to be paid? That is the common sense behind bank reform. Protecting you and the money you deposit into the bank.


Labels: , , , , , , ,

AddThis Social Bookmark Button


Post a Comment

Subscribe to Post Comments [Atom]

<< Home