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Wednesday, July 4, 2012

Investment banking should be outlawed.

Banking is essential to our present economic system. It supposed to concentrate many small amounts of money into a large amount that can be used to fuel the system with loans at reasonable rates. This is done by depositors giving them their money to use in this way in exchange for a reasonable rate of interest. The interest rate for depositors should be slightly less than that for loans in order to pay for operating costs. It shouldn't be used to deter borrowing or make profit. The banks shouldn't be able to use a depositor money for anything but loans. Investments should be made through investment companies or directly by investors. And if the government owned the banks, it wouldn't have to borrow at an interest rate out of its control. It could even wave it entirely. Hell, all our taxes could go to it first, and then the government could draw out what it needs., but I digress.

Investment banking should be outlawed. Banks, because of their essential nature, shouldn't be involved in the stock market. So called investment banking isn't investment at all. Investment requires that you become a part of the thing invested and profit when it does. What investment banks and much of the financial sector really do is gamble. They make bets on the changing value of stocks, not investment in the future of companies related to that stock. It is the worst part of the stock market, where speculation rules. It has been the cause of every major stock market crash as well as the Great Depression and Great Recession and is rife with corruption and greed. Stock market prices are used to indicate the health of an economy when really all they do is reflect the odds-making and expectations of gamblers. Gamblers who are able to create complicated schemes that trade value rather than creating real wealth and then get regulators to approve or turn their heads. Until the game goes bust, and then we all end up paying the debts of the cocaine-feuled high-rollers.