Too Big To Exist

In 2006, when Democrats were still in the minority, Rep. Barney Frank raise the question of executive pay. The top decision makers on Wall Street were able to take risks and if the risks paid off, they made lots of money. However, if these top decision makers took risks, that went terribly wrong, they didn’t lose any of their own money.

The banks were allowed to decided how much cash they had to keep on hand, and that new rule was pushed by Henry Paulson, who eventually, became Bush’s treasury secretary. In 2008, while Bush was still President, Paulson decided how the first half of the $700 billion in TARP funds were spent.

Risk structure was one of the reasons that Wall Street got in trouble 2008. In 2009, House Democrats passed a bill, that called for all regulators of any financial institution; banks, the bank regulators, and the Security Exchange Commission to put in rules, that do not allow the kind of bonus structure, that provides an incentive to take a lot of risks.

There have even been cases, where the risk appeared to pay off within a short period of time and people make a lot of money. However, if the deal later turned sour, they didn’t have to give any of the money back. Regulations have to spell out, that top decision makers cannot have one-way bonuses. Heads they win, tails they break-even, because it is leads Wall Street scoundrels to take too many risks, and that endangers our society.

When financial institutions get to big to fail. They’ve become to big to exist. In 1999, Congress killed the Glass-Steagall Act, which had erected the wall between regulated Main Street banks and unregulated investment banks. Congress needs to reinstate the Glass-Steagall Act.