Unrealstic Expectations For Banks and Other Financial Institutions

I had a good laugh this morning when reading this article in the Ottawa Citizen. I think it takes a totally nonsensical view of the business world. Whence comes this expectation that the most amoral of institutions, the corporation, and one whose core purpose is the generation of returns for its investors, is somehow going to unilaterally do something other than just that? Investors expect nothing less from management of their corporations, including all the various financial institutions, or they push those teams out and replace them with management that will generate the returns they expect. I wrote about this once before, so you can see a bit of my own ideological thoughts emerging here.

No, it is not the job of corporations to reign in their quest for profits. That is the job of the society in which they operate. Our appointed agents to do this is government. On our behalf, and to protect us, government must regulate corporations so that they cannot get away with, at least not for long, activities that threaten us and our society. Banking and finance are no different in this than are food safety, pollution controls, environmental management, and all the rest. Regulation of industries that can cause damage in their relentless pursuit of profit is necessary. Laissez-faire capitalism was supposed to have gone out of style in the 19th century.

Government is to blame here, and us for allowing them to get away with dereliction of duty. There seems to be some ideologically-driven need of governments here and in the US lately that eschews regulations. It is also driven by a desire to reduce government expenditures, which is very much in vogue with Canadian federal governments, whether Liberal or Conservative.

I'll say it again - self-regulation is an oxymoron. Give a teenager a car and he (or she) will almost certainly speed. Putting up speed limit signs while the police duck into the nearest Tim Hortons is avoiding the problem. The speed limits must be actively enforced for drivers to begin altering their behaviour. Financial regulations must be enforced if our large banking corporations are to begin to avoid risky, though profitable in the short-term, behaviour.

The responsibility is ours. We must hold our governments accountable for their failure to protect us with effective regulation and regulators. Everything else being said is just so much hot air.

Update: Here is an excellent post on this topic by Barry Ritholtz I read after writing my post. The punch line is particular relevant here: "Chalk up another win for excess deregulation . . ."