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Thread: Banks and Investment Houses as One: Pro and Con?

  1. #1
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    Banks and Investment Houses as One: Pro and Con?

    Something I've been wondering about alot of late. One of the claimed causes of the finanacial meltdown and housing merket crash is the end to barriers between traditional Banks, and the more risky/risk taking Investment Houses.

    As a point to start with, I hope we can all agree that there is no fundamental human right to be both a Bank and an Investment House, and that (support specific regs or not) it IS within the power of the State to regulate these entities for the public good.

    So the question I want to pose, and I admit up front I have no answer myself, is what are the Pro's and Con's to the idea of keeping a barrier between Banks and Investment Houses, or allowing them (as we stand now) to merge, creating a Bank/Investment House entity?

    Why should people support one idea or another?

  2. #2
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    The government has turned mortgages from bank loans into securitized investments. I'm not sure how seperating these institutions would have prevented the housing melt down? We would still have had the loss of assett wealth and borrowing power that sucked the life out of demand and put our economy into a hard recession. We would still need to deleverage to have sustainable growth and wealth creation.

    Securitization which the government created to build demand into the housing sector by making money available created risk that the government and rating agencies failed to account for. Not sure how this is solved by breaking banks away from investment houses? I would love to know more.

    I can see the problem where money is fungible and you have FDIC deposits on one side of the ledger and investments on the other side. Again it comes down to the Fed understanding the hedges and the risk. If they can't understand the risk they should make the hedges they don't understand illegal.

    One of the reasons we have terrible growth right now is the lack of risk. The horse has left the barn on risk and to try and reduce risk now is counter productive to getting out of the current recession. If risk was really a problem right now people wouldn't be willing to buy government treasuries and bonds at below real inflation rates. One of the reasons the Fed drives interest rates down is to make it risky to put cash on the sidelines.
    Last edited by Winstonbiggs; 05-15-2012 at 10:33 AM.

  3. #3
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    I always found economics BORING as hell.

    However, it seems to make some sense that having a lot of little enterprises is better than having just a few big ones. Better to survive failures and whatnot.

  4. #4
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    [QUOTE=Warfish;4468516]Something I've been wondering about alot of late. One of the claimed causes of the finanacial meltdown and housing merket crash is the end to barriers between traditional Banks, and the more risky/risk taking Investment Houses.

    As a point to start with, I hope we can all agree that there is no fundamental human right to be both a Bank and an Investment House, and that (support specific regs or not) it IS within the power of the State to regulate these entities for the public good.

    So the question I want to pose, and I admit up front I have no answer myself, is what are the Pro's and Con's to the idea of keeping a barrier between Banks and Investment Houses, or allowing them (as we stand now) to merge, creating a Bank/Investment House entity?

    Why should people support one idea or another?[/QUOTE]


    Do not agree with your risk assessment. My position is based on personal experience. I have been with the same brokerage group since 1976. The name has changed but it's the same group.
    Anyway, Smith Barney was most recently part of Citicorp. Smith barney was highly profitable and well run. Citi became a shambles. Currently, Smith B is part of Morgan Stanley. they continue to be solid. MS is so so. Don't have stock in any, they just handle by finances.
    So it depends on the bank and the investment house.
    As in any company with divisions, all are not equal. The consumer products groups at J&J for example is well run. Their McNeil group with OTCs is a total disaster with quality problems. I can cite many examples of division problems in many companies.

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