They’ve learned they could probably get away with anything…

Don’t you wish we didn’t have to bail out the banks? I don’t know anyone who thinks that either the institutions or their executives deserve it.

It might be different if it was the first time their incredible greed got them and the country in so much trouble that it was necessary for tax-payers to bail them out.

It might be different if they had learned from past mistakes and had embraced their responsibility to be prudent with other people’s money, instead of returning as quickly as possible to embracing unfettered greed.

It might be different if they were taking the current massive bailout funds in the spirit in which they are being provided, to try to salvage the economy, instead of looking at it as a windfall, a source for big parties (a la AIG), huge personal bonuses, million dollar redecorations of their executive offices, even the purchase of a new $40 million dollar corporate jet.

But anyone who has been around for any length of time probably agrees with what John Adams was already saying way back in 1799, “Banks have done more injury to the morality, prosperity, and wealth of the nation than they will ever do good.”

As I wrote in my 1999 book Riding the Bear – How to Prosper in the Coming Bear Market, “The banking industry has an appalling record of allowing excess greed to overwhelm its judgment, with the government periodically having to step in with taxpayer dollars to prevent a complete collapse of the banking system. In the 1970’s it was their high-interest loans to struggling third world-countries, countries which could not afford to pay the interest let alone pay the loans back. Banks made the loans on the theory that the world was not going to allow countries to go bankrupt. They finally had to write-off their bad loans, and when the extent of those loans was revealed, billions of dollars of taxpayer-backed ‘Brady bonds’ had to be issued to cover the loans and bail the banks out. In the 1980’s it was junk bond financing and careless real estate loans that resulted in the collapse of more than 900 Savings & Loan banks, the so-called S&L scandals, with the bailout costing taxpayers billions of dollars. In the early 1990s similar greed and reckless loans to real estate developers, takeover firms and other speculators as the economy approached the 1991 recession, resulted in the failure of hundreds of banks. Hundreds more had to be bailed out and restructured by the FDIC, in a very close call to the banking system.”

Did the banks learn anything?

Oh yes. They learned they could probably get away with anything, because they had obviously become too big and too important to be allowed to fail.

But they didn’t learn to curb their greed. On the contrary, they immediately began lobbying in the 1990’s to have laws changed so they could offer brokerage and mutual fund services in addition to banking services, and so they could operate trading departments of their own. They wanted to participate in the rip-roaring stock market of the 1990s in the worst way. And that’s exactly how they participated, in the worst way.

Among other activities, they began packaging their mortgage, auto, and commercial loans into debt-backed securities that they sold off to institutions, hedge funds, and investors. Thinking they were thus pushing the risk off on others they brought in millions of new borrowers, by offering creatively-financed mortgages to home-buyers who had no chance of handling the loans once initial teaser rates were adjusted to real rates. Thus, did they do more than their share to create the housing bubble, which has spawned all the problems since. Meanwhile, in a brilliant move, they began putting the toxic waste they had created back on their own books by accepting it as collateral for still more loans to hedge funds and other speculators.

In the current bank crisis they apparently don’t feel the need to even pretend they have learned a lesson and intend to mend their ways. Such is their arrogance with the bonuses and spending on lavish perks.

So once again they’ve done it, and as much as we’d all like to exact revenge, to see them personally in the depths of despair they have forced on so many, their institutions cannot be allowed to fail.

The only way I can stomach it is to realize that failure of the banking system, and therefore the economy, would bring far worse repercussions for the country and those who can least afford it than it would for high level bank executives (who, in order to maintain their lifestyles, would merely be forced to spend some of the fortunes they had already accumulated).

In the early 1990’s dozens of S&L executives, junk-bond kings of the investment banks, and their friends caught in illegal insider trading, wound up in court and served prison sentences. I’m not an attorney, but it is my layman’s opinion that the deliberate misleading of home-buyers for the profit of lenders at least skated around the edge of being a scam. And that lobbying for billions in bailout money to rescue the banking system and allow banks to make loans again, and then locking it up in their vaults and using it to buy out competitors, throw corporate parties, and pay themselves huge bonuses, comes as close to the definition of theft as I can imagine.

Rescuing the economy has to be at the top of all priorities. So everyone is going to have to hold their noses and continue the bailout efforts. But at some time in the future, when such activities wouldn’t further depress consumer and investor confidence, I’d love to see more than a few people have to answer for their activities in the courts.