Quick Links

• Following up on a post I made a couple weeks ago: Geithner is going before Congress today, and will be questioned on the AIG bailout. FT has a fantastic writeup on this topic. The article does a wonderful job of giving the reader background on the entire saga, and goes on to analyze many of the issues that brought us to a crisis. I quote from the concluding paragraphs of the article:
  

  The disputes struck, too, at the heart of a growing conceit in the financial world that nearly any asset could be priced and traded. This development was interpreted as a sign that markets were growing more “free” since the pool of tradeable assets appeared to be growing.
  ...
  What the AIG drama exposes is that much of the recent innovation on Wall Street was dedicated to creating assets that barely traded and whose values were determined almost exclusively by computer models used by the banks and rating agencies.
  In this 21st-century hall of mirrors, it has been possible for tens of billions of dollars of value to vanish or reappear at the click of a computer button – or at the behest of the rating agencies or through a change in accounting rules. That in turn makes it hard for the US government to explain whether the taxpayer really got “value for money” by bailing out AIG – or whether Americans will ever get back all the billions already spent.
  

• Financial Services: From Servant to Lord of the Economy. This relates to a post I made very early on in this blog: should commercial banking be a public utility?
• Mish Shedlock is campaigning hard against Bernanke.

Should commercial banking be treated as a public utility?

Credit for this goes to my dad, who first brought this idea up to me. For the record, I don't think it will ever happen, but the idea is very much worth thinking about. I've captured the conclusion of an interesting article written by Numerian at The Agonist in this blog, but it's worth reading in its entirety:

"In fact, it sounds more and more like commercial banking, in a world where risks are priced and capitalized properly, is a world of modest profit and modest returns for shareholders. Doesn’t that sound like a utility to you? ..."

"... The Treasury and the Fed are propping up so many different markets that it is estimated some 30% of all finance comes from Washington now. Chase is one of the selected vehicles for channeling all this money, and it is allowed to take a generous transaction fee on every dollar. This is no longer banking, but rentier finance for a few institutions granted monopoly rights – again, the classic definition of a public utility."

What is called for is a highly regulated industry considered critical to common good that is in return guaranteed monopoly: essentially the concept of a public utility. It is worth, then, providing a related piece that is opposed to the idea that regulation is lacking. This piece is of the opinion that regulation was in place to deal with the instruments that led to the crisis; instead, what was lacking was enforcement of these regulations, which resulted in fraud.