President is right: We need a return to safe banking

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President Obama is absolutely right: If we are to learn anything from the Crash of 2008, it's that it's time for banks to be banks again.

It's time to take the roulette wheel out of your bank's back room and out to the trash.

Even now, the American economy is at severe risk from two financial phenomena especially: the fact that financial institutions have been allowed to become "too big to fail," which is patently absurd to begin with; and the fact that banks have been allowed to use the strength of your deposits to invest in risky schemes for their own gain.

The chickens came home to roost in the Crash of 2008. Now it's time to fix the chicken coop.

President Obama this past week called for new regulations to prohibit risky bank investments and to prevent dangerous consolidation of financial institutions into behemoths whose failures could lead to a wider economic collapse.

We could not agree more with the president. His proposals are, to the Crash of 2008, what the 9-11 Commission's recommendations were to 9-11.

It is plainly outrageous and insanely irresponsible for banks to be able to invest in risky securities and other roller-coaster investments with your life savings and rainy-day funds -- and then to expect taxpayers to bail out those institutions when they crap out at the hedge fund table.

This was a lesson learned after the 1929 crash, but forgotten by the 1980s, when Wall Street and bank lobbyists -- jealous of big profits at investment houses -- began a full frontal assault on Congress to resume the shaky speculation that helped lead to the Great Depression. By 1999, the Roaring '90s had nearly everyone convinced that the good times were here to stay and that the Federal Reserve and others had a firm grasp of the economy's steering wheel.

So the Republican Congress foolishly repealed the 1930s Glass-Steagall law that had long prevented rampant bank speculation. For decades after the crash of 1929, banks had been prohibited from acting like riverboat gamblers. By 2000, the gaming tables were open again.

It must be said that in announcing his proposed return to Glass-Steagall types of regulations, President Obama did not mention Congress' role in the Crash of 2008. For years, the federal government, wishing to artificially increase home ownership, actually required mortgage lenders to provide loans to people with little or no ability to maintain them; then, those bad "subprime" loans were gobbled up by quasi-governmental Fannie Mae and Freddie Mac. We're not sure that situation is any better than in 2008.

Regardless, we stand firmly with the president in demanding a return to safe banking.

"We intend," he said, "to close loopholes that allowed big financial firms to trade risky financial products like credit default swaps and other derivatives without oversight ... and to ensure that the failure of any large firm does not take the entire economy down with it.

"Never again will the American taxpayer be held hostage by a bank that is too big to fail.

"The American people will not be served by a financial system that comprises just a few massive firms. That's not good for consumers; it's not good for the economy."

In proposing what he called the "Volcker Rule" -- after former Fed chairman and Obama adviser Paul Volcker -- the president said, "Banks will no longer be allowed to own, invest or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving their customers."

Hallelujah!

Mr. Obama asked those in the financial industry to work with him, not against him, in reforming the system. We also urge them to do so -- for the sake of themselves, their customers and their country.

Comments (57)

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Ayetidiosi
1
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Ayetidiosi 01/23/10 - 09:27 pm
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Aye!

Aye!

Notreally
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Notreally 01/23/10 - 09:34 pm
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LOL not one Obama hater

LOL not one Obama hater agreed with this editorial, I guess since the Chronicle gave him a thumbs up the everyday ODSers don't know how to respond. Now had this been President is WRONG this thread would have over 300 post to it.

southernguy08
415
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southernguy08 01/23/10 - 09:54 pm
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AC, no argument the system

Unpublished

AC, no argument the system needs revamping, but you don't throw the baby out with the bathwater. Asking the great "neighborhood organizer" to come up with new banking regulations is like asking John Edwards to write a book about family values. Neither knows anything about the subjects.

airbud7
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airbud7 01/23/10 - 10:07 pm
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Give it time NOTREALLY this

Give it time NOTREALLY this is sundays edition your post is on saturday night.

Junket831
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Junket831 01/23/10 - 10:34 pm
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I couldn't agree more with

I couldn't agree more with the AC editorial. Who cares whether the new limits are proposed by one party or another. The fact is they are needed and never should have been changed in the first place. There is very good reason that many regulations are in place. Sometimes they are annoying and create an inconvenience. However, to live without regulation is foolhardy and can have collosal implications for our society. If you don't set regulations to protect the average consumer and small business then the money changers will continue to scheme to make money anyway they can without regard to the consequences.

Riverman1
70535
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Riverman1 01/23/10 - 11:14 pm
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When government guarantees

When government guarantees banks, savings and loan assoc. or anything else, it will lead to abuse. But the corollary is when government tells banks to make risky loans that also leads to the same bad ending.

HTN007
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HTN007 01/24/10 - 02:54 am
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Don't forget who was

Don't forget who was responsible for the repeal of Glass-Steagall.... Sen. Phil Graham of TX. Scary to think that guy was running for president!

johnston.cliff
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johnston.cliff 01/24/10 - 02:56 am
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This sure is a wacky

This sure is a wacky editorial. First the editorial claims the banks delved into risky investments and should be more closely regulated and then the editorial claims the government forced the banks to make the stupid sub-prime loans. What isn't mentioned is that after the government gobbled up the stupid loans (Fannie Mae and Freddie Mac) they were allowed to repackage them as viable investments, underwritten by the taxpayer, and sold on the open market so other investors could be hurt too. The financial collapse was engineered and directed by the federal government and it's control over the banking industry. Now, this editorial wants a Marxist to apply more control to the banking industry to fix the problem? This sure is a wacky editorial.

MarshCroaked
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MarshCroaked 01/24/10 - 03:13 am
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While I share some of the

While I share some of the overall sentiment. I have doubts about the ability of this (or any other) administration to "regulate" private enterprise in an equitable manner. I think making it clear that there will be no more bailouts would convince CEO's and CFO's into responsible investments and business practices. Sure, there will be some big lumps as the ones who don't get the message fail, but in the long run it would sort itself out without government intervention. The "Last man standing" theory works. I agree the federal government has a roll in monitoring banking activity for fairness and open competition since it is interstate commerce, that's what they are supposed to do. I object to the fed thinking they are smarter than the folks currently running major financial organizations, they are not. Replace Bernake and this notion that if you cut 12" off the end of the blanket and sew it back on to the top of a blanket that you have a longer blanket.

Pu239
284
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Pu239 01/24/10 - 03:37 am
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"LOLPMP not one Obama lover

Unpublished

"LOLPMP not one Obama lover agreed with this editorial, I guess since the Chronicle gave him a ESCALADE the everyday HMFICers don't know how to respond. Now had this been NOTREALLY is translucent this thread would have over 300 pounds.

MarshCroaked
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MarshCroaked 01/24/10 - 03:59 am
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Pu - I hope you had a

Pu - I hope you had a designated driver tonight. Glad you made it home safely.

Dixieman
10350
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Dixieman 01/24/10 - 07:39 am
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This is crazy -- free market

This is crazy -- free market is better than government at any time and under all circumstances. Shame on AC!

U.Dumus
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U.Dumus 01/24/10 - 07:55 am
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this melt down was caused by

this melt down was caused by the gov't not the banks, they made banks make loans to people who could not afford them, Obama is simply trying to get the citizenry angry at someone other than him. Now after the big banks paid back the money most did not want to take, they will be punished by the gov't that caused this mess.

concernednative
28
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concernednative 01/24/10 - 07:58 am
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Ask the AC and Morris how to

Ask the AC and Morris how to screw creditors. Maybe the common man can learn a lot from Morris and all banks will fell if we just pay them .35 on the dollar like the AC. It would really help me and my wife out a lot.

johnston.cliff
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johnston.cliff 01/24/10 - 09:00 am
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The new format will help with

The new format will help with your comments concernednative. If you have hitched your wagon to the Chronicle star, I'm sorry for your financial problems. I hope you're flexible enough to roll with this punch or change directions without suffering too much damage.

Rhetor
851
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Rhetor 01/24/10 - 09:13 am
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Dixieman, the President's

Dixieman, the President's proposal does not restrict the free markets. What it does is to outlaw fradulent practices. One of a government's most basic obligations, traceable back to the Magna Carta, is to prevent fraud. Another government obligation is to issue and maintain a stable currency. People who foolishly want to invest in hedge funds, structured investment vehicles, and the like will still be totally free to do so. The deals that the banks worked out, which became so bizarre and complicated that some big banks themselves couldn't figure out who owed them what, are not banking. Furthermore, the bankers are not operating in the free market when they expect innocent taxpayers to bail them out. Yet, they testifed a few weeks ago that they still expect the taxpayers to do just that for them, every time. U.Dumus, nobody forced the banks to make risky loans. That is a silly claim. The responsibly operated banks remained healthy throughout the crisis.

johnston.cliff
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johnston.cliff 01/24/10 - 09:35 am
0
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U.Dumus, nobody forced the

U.Dumus, nobody forced the banks to make risky loans. That is a silly claim. The responsibly operated banks remained healthy throughout the crisis.
Posted by Rhetor on Sun Jan 24, 2010 8:13 AM
Rhetor, your are sorely misinformed. You need to stop watching the lamestream press exclusively. The banks that ignored the government threat to stop doing business with institutions that didn't give the "sub-prime" loans were the smaller independent banks and they weathered the storm just fine. ALL of the larger institutions, you know, the ones that do business with the government, took a beating that sent ripples around the world and has endangered the standing of the dollar. GOVERNMENT INTERVENTION IN FREE ENTERPRISE IS ALWAYS DISASTROUS.

DonnieJoe
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DonnieJoe 01/24/10 - 09:40 am
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When i lived in

When i lived in Augusta(Hepzibah) i banked at the Georgia Railroad in Hepzibah i coule borrow "fairly large" amounts of money and all i had to do was "sign on the line" "you guys are doing great" if the U.S.A. operated in this manner (local banking) you would not see all the For Sale signs that we have now!! (Thanks Miss Kitty)

seenitB4
72606
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seenitB4 01/24/10 - 09:56 am
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Thanks we need the limits,,,

Thanks we need the limits,,, some folks don't need a loan..We can't put everyone in a house just because It feels good to do it.

MarshCroaked
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MarshCroaked 01/24/10 - 10:00 am
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seenit, Do you believe the

seenit, Do you believe the federal government is the best entity to determine and enforce what the limits should be? Especially this administration where only 8% of appointees have ANY experience in private sector business? I certainly don't.

slippery 25
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slippery 25 01/24/10 - 10:15 am
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Government telling banks to

Government telling banks to loan money to people who can not pay it back was not a good policy.

Ayetidiosi
1
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Ayetidiosi 01/24/10 - 10:17 am
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I'm sure someone will correct

I'm sure someone will correct me if I am wrong, but I like this idea. I felt the repeal in the 90's of the separation of banks and investment firms was a bad idea. Keeping the banking industry spread out, not consolidated to a few large banks, protects us all. I don't favor EXCESSIVE regulation of the finance industry, but these steps outlined by Obama are needed, necessary, and not an infringement upon free enterprise. Btw: Jackfruit: you've called me a hater many times. Hope your heart meds are nearby.

Riverman1
70535
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Riverman1 01/24/10 - 10:49 am
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Andrew Jackson warned us what

Andrew Jackson warned us what would happen in the most direct way.

kulay294
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kulay294 01/24/10 - 10:52 am
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This editorial is completely

This editorial is completely off base. Obama has not and never will be right about anything. Quote from AC, "Mr. Obama asked those in the financial industry to work with him, not against him, in reforming the system. We also urge them to do so -- for the sake of themselves, their customers and their country". The banks have tried to work with him but all he has done to the banks is proposed fines and fees in turn the banks have lowered credit limits and raised % rates. The problem is that Obama wants the government to OWN the banks so he can control what they do. AC, I'm disappointed in this editorial. You missed it big time!!!

dwb619
74801
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dwb619 01/24/10 - 10:55 am
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Two points: 1. Banks could

Two points:
1. Banks could not operate across state lines until the advent of Reaganomics.
2. No credit unions have failed.

disssman
6
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disssman 01/24/10 - 10:56 am
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Simple solution is to reset

Simple solution is to reset the bankruptcy laws to what they were 5 years ago before the bankers bought Congress.

johnston.cliff
2
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johnston.cliff 01/24/10 - 11:01 am
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"...'ware the money lenders"

"...'ware the money lenders" has been a part of our society since our country began. Just as banks can manipulate, banks can be manipulated. Using them as "social engineering" tools by a specific philosophy was a bad idea. It was political trickery. Now the explanation of and blame for the trickery is MORE political trickery. The question is, how many uninformed and misinformed voters will fall for this wave of political manipulation?

Fish Out of Water
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Fish Out of Water 01/24/10 - 11:15 am
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A Chronicle article praising

A Chronicle article praising Obama?! The end must be nigh!

MarshCroaked
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MarshCroaked 01/24/10 - 11:29 am
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Fish - It will be okay. They

Fish - It will be okay. They are off base! lol

dichotomy
26633
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dichotomy 01/24/10 - 11:36 am
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Yes, there needs to be more

Yes, there needs to be more regulation of banks making risky investments. But it should be done in a calm, professional manner by the congress. It should not be done by the vile, public attack that Obama used this week which crashed the stock market. He is a very unprofessional rookie President who cost American investors a lot of money and lowered confidence this week with his loud mouthed vile attack which is not backed by any specific proposal or proposed legislation. He was merely looking for a villain to try and take the attention away from the butt kicking his agenda took in MA this week. Keep shooting off your mouth Mr. Obama. Everything you do makes things worse and will ensure your unemployment in 3 years and unemployment for more of your cohorts later this year. Even when something needs to be done, there is always a correct way to do it and Obama continues to prove that his way is always the wrong way. Attacking an industy on TV, trying to make yourself look like Robin Hood, does not instill confidence Mr. President. It only makes you look like a kid throwing a tantrum. If you don't believe me just look at the stock market last week.

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