There are a lot of ignorant and clueless writers who attempt to make it sound like the pay structure of Wall Street CEOs could have been behind the failure of the banking system: fractional reserve banking and the Federal Reserve.
Now that most of the big banks took bailout money in America, that assertion has been making the rounds in an attempt to take the focus off the real causes behind the failure of the American banking system.
Of course I don’t feel sorry for the bankers in any way, as they knew this was coming when they went running to the government and Federal Reserve begging for handouts. So there’s no sympathy there from me in any way.
So with many writers with socialists leanings and sympathies write about the pay of bank CEOs being the thing that led to the failure of the banking system, they’re either completely ignorant of the business of banking in general, or are being totally dishonest in their assertions.
Does this mean the any business CEO should be rewarded for terrible performance? No. But that’s a free market decision to make, and when a person runs a company poorly, eventually they’ll removed and replaced by someone that can run it profitably; either that or they simply are allowed to fail, like the banks in America should have been allowed to do, so that those that were running financial institutions soundly could have taken over their assets and continued on with a healthier situation.
That wouldn’t have dealt with the underlying systemic problems of fractional reserve banking and the Federal Reserve, but at least those that knew how to run a business under those limiting circumstances would be in charge.
The reason I bring this up isn’t because I agree that these bankers should have received the type of pay they did when the companies they were running were failing, it’s to show that focusing on that is completely irrelevant as far as it relates to why the banking collapse happened in the first place.
Again, to make it as simple as I can, if banks invest money long term or make long-term loans, they won’t have the short-term money or deposits of its customers to back it up. That’s the extraordinary weakness of fractional reserve banking, and why it’s such a terrible way of doing banking.
Now back to the Federal Reserve. While the government has pressured some banks to remove some of the CEOs and banking leaders, the bailout still rewarded poor banking operations and kept banks that should have been allowed to fail to keep on operating. This is why government doesn’t belong interfering in any business operations other than legally enforcing voluntary contracts.
As far as the boom and bust economy we live in as long as we have fractional reserve banking and the Federal Reserve, that will continue on until things are changed. It’s inevitable when someone controls a printing press that can spew out paper that lowers the value of the U.S. dollar and increases inflation.
Until we get off that merry-go-round, it will be business as usual in the banking industry, and we will face these times again and again as the moral hazard of banking executives knowing they can get away with anything and still be bailed out at the expense of taxpayers dollars and the extraordinary inflation that is about to descend upon us from this unbelievable disaster.
Banking CEO pay, while obviously irresponsible and not a good business practice when the bank is doing well, is still a free market decision. Yet when the banks that did receive bailout money got collared on pay, they deserved it for going begging in the first place.
Even so, it wasn’t bankers’ pay that brought the banking system, it was the faulty system itself that did it, with the reinforcement of the Federal Reserve and Ben Bernanke who are now deciding who they will allow to fail and who they won’t.
Another reason we must “End the Fed.”
