For the time being, John Oliver, a British ex-pat is hosting “The Daily Show.” This is while John Stewart directs a movie in the middle east. I like Oliver’s comedy takes on politics/the world of business. However, last night, he and Jason Jones were comparing heavily regulated Canadian banks to those who oppose regulation here in the U.S. It was a theme heavily laden in sarcasm to be sure. But it did involve a very serious issue: bank collapses and bank bailouts by the federal government.
Underpinning last night’s comedy skit, were e-mails that were apparently surfacing between the S&P and the banks they were supposed to give credit ratings to. These e-mails being factual, the banks were bribing the people at the S&P to get the best possible credit rating that could be achieved. No one specifically got into whether those banks that engaged in this “standard business practice” then faced catastrophic collapse. But it was alluded to by the fact that heavily regulated Canadian banks didn’t face significant failures in their entire history. This gives me a new take on the old story of the snake oil salesman. You know the guy, he’s the huckster selling a potentially harmful product and wants you to trust him. In fact, he whips out the S&P credit rating that he just bought through some hefty bribes, to prove to you that he can be trusted. But can you?
Given the bank failures, and certainly the failures of mortgage companies such as Countrywide, circa 2007 to 2008, the federal bailouts that required tons of tax payers’ moolah to keep the entire banking system from reaching critical condition. Those banks may not have wanted regulation, but they loved getting the money. That’s the one thing about the FDIC, the feds underwrite the banks that don’t want this “regulation.” The feds will assure the security of your deposits and savings up to a certain amount. In a truly free market without any federal involvement, wouldn’t you simply be taking your chances the moment a shyster became the CEO of your bank? Add to that, his willingness to bribe for a good S&P credit rating, and you have all the makings of another Enron. Quite frankly, I’d want to be able to trust the people I do business with, and that includes the banks. I’d rather have them regulated and following the law so that I’d know I could indeed trust them. How about the rest of you? After that situation with Capital One, and its failure to follow the law. If you can’t trust a credit card company to treat its customers right, then whom can you trust? Then yes, there is a need for regulation to guarantee that trust. Further, for capitalism to even exist and flourish. For the market place to have a secure means to continue. Sure, these people who opposed regulation were not asked whether they opposed a federal handout. Then again, the actual facts were, they welcomed the federal handout very much. That’s a statement right there, the banks can engage in excesses that have catastrophic consequences for the customers. On the other hand, the banks face no consequences for themselves. That is, shyster CEOs don’t typically face the criminal justice system trying to get rich at the customers/taxpayers’ expense. At worst, they get fined as Capital One ultimately had. If these banks truly could afford to bribe the S&P for a good credit rating, then they can also afford to pay those fines for failing to engage in proper banking practices.
On another note, these e-mails that apparently surfaced involving the S&P, these e-mails being factual, can you trust an S&P rating after this? How about the rating the S&P gave the federal government during one of its budget impasses? Who paid the S&P to downgrade the feds credit rating? The consequences of opposing federal regulation to be sure.