Not many of you might support my views when I say banks should be governed properly, and there should be more government intervention to get banks under control. However, let us not come to any conclusion before discussing the topic elaborately.

American economy, investments, currency, and future of our nation depend on how well we manage and run our financial system. In past, banks, in order to earn more profits, had taken steps that proved to be a big disaster. Yet, most banks show no remorse for economic crisis they were responsible for. And if they are left unchecked, it may lead to even worse situation.

Where it All Stared?

Introduction of Glass-Steagall Act after the Great Depression was one of the wisest steps taken by government, and it helped stable and grow the economy for more than 6 decades. However, in 1999, this act was dismantled by former President Clinton. Today, most economists believed such irresponsible act was accountable for recent recession, and if the Act would have been intact, the US coulbe have prevented Sub-Prime Crisis of 2008.

The abolishment of such act allowed banks to both deposit and invest money, which gives birth to many scary things. Deposit banks are free to invest money in risky derivatives, and if they lose all their money, FDIC is liable to repay the debt. Hence, no risk is being shared by the bank.

Easy Way Out – Bailouts

Many banks, in recent recession, were bailed out by the government to save the financial system of the nation. This has encouraged most financial institutions to take unnecessary risks and depend on bailout money. During the 2008 crisis, banks in the US received around trillion dollars of taxpayers’ money, apart from many millions pumped in by the Fed. However, foreclosures, although slowed down, are far from over.

As long as the government is ready to transfer the burden onto taxpayers, most banks would continue to speculate and depend on bailout money. Is it different from going to a casino, owning what you win, but relying on your dad to repay your losses?

This has been happening in America since last few years. Banks are behaving like spoilt brats, and the Fed has been ignoring all their blunders time and again. If this doesn’t stop here, a double-dip recession is inevitable, and America would eventually lose all its reputation in the world market.

Derivates Reform

We urgently need derivatives reform. The estimated amount of derivatives volume is approximately 11 times the GDP of all countries in the world. This is absolutely insane risk taken by insurance providers, bankers, and hedge fund traders. The potential for disaster is devastating and avoiding another financial crisis would be invisible.

Many derivates, in the first place, shouldn’t have been legal. Besides, securities with high risk potential like naked shorts should be banned. Also, most derivates, in fact all, should be traded on regulated exchange, so they all can be easily monitored by SEC.