'...banks are dangerous...' - Wall Street's Casino open for business?

[WhiskeyGirl]

JOHN CASSIDY: Well, one of the things we learned two years ago is that banks are dangerous. They perform very useful functions in society. They redistribute money and resources. But if they go wrong, they can bring down the entire system with them. So we need to do everything we can to make banks safer. And one of the things we can do is make them hold more money in reserve for when they get into trouble.

A couple of years ago, most banks were holding only two or three cents on the dollar for every asset they held. So if the markets turned against them, they could get into trouble very quickly. What this new banking regulation is about, the one set up in Switzerland over the weekend, is forcing banks to hold more money against losses. And I think that's a good idea. It's an obvious thing to do but, you know, it was necessary.

JEFFREY BROWN: Andrew, what would you add to that?

ANDREW ROSS SORKIN: Well, I think the real question is, is it enough? You looked at how the bank stocks performed today, and they were all up. Why were they all up? Because people thought this wasn't nearly as Draconian as they thought it might otherwise be. Simon Johnson, one of the economists out there, has talked about having capital requirements of 15 percent. So seven percent may not ultimately do it.

And then you think about the fact that you have until 2018 to do it, I worry. I hope that neither of us will have to right sequels to our books, but I worry that actually we may run into another problem between now and then.

JOHN CASSIDY: Well, in a way, you know, it reminds me of what happened during the Second World War when the sort of French generals got together to discuss what went wrong, how did the Germans get in? And they decided of course that the Maginot Line they had constructed didn't work. What we had here was a Maginot Line, the so-called Basil II agreement, which failed. So they decided to build a bigger wall, in effect, Basil III, which is this new set of requirements.

But we know from history that banks and financial innovators are very good at getting around regulations and new capital requirements. So whatever it says on paper, there's always a risk in the future that some clever guys on Wall Street or the city of London will find a way to circumvent these regulations. So, on top of just having regulations on paper, you also need very vigilant and very capable regulators to enforce them.

Vigilant and capable regulators?  Same folks that didn't see the financial bomb in 2008?  Barney?  Ignored all the red flags?

...And it's also given the Federal Reserve in particular a lot more power. In many ways, the Federal Reserve failed during the last credit boom to regulate the economy properly and regulate the financial markets, but it's been rewarded. Failure has been rewarded, and now we're relying on the Fed next time around to do a much better job. Well, we hope they'll do a better job, but experience teaches us to be cautious. So we just have to wait and see.

None of these things will be tested for years to come because banks don't get in trouble when the economy is doing pretty badly as it is at the moment. Banks tend to get in trouble when the economy is actually doing well, counterintuitively, because that's when they lend too much money to people who don't really deserve the money. So it won't be until we have another boom that we test all these new fireguards.

more here - http://www.pbs.org/newshour/bb/business/july-dec10/lehman2_09-13.html

Doesn't the healthcare bomb blow in 2014 too?  World in flames?

None of these bankers ever seems to go to jail or lose all their wealth.

Bernie Madoff went to jail.  Social Security is broke, many pension plans, including government and union ones seem to be underfunded, and no one seems likely to go to jail.

What's wrong with this picture?

jmho