Banks are The "Achilles' Heel of Capitalism"

Barron's July 29, 2012
Edward Yardeni of Yardeni Reasearch

"The problem with banks is that they tend to blow up on a regular basis. That's because bankers are playing with other people's money (OPM). They consistently abuse the privilege and skirk their fiduciary responsibilities. Whenever they get into trouble, government regulators scramble to bail them out first and then scramble to regulate them more strictly. Without fail,the bankers respond to tougher rules by using some of the OPM to hire financial engineers and political lobbyists to figure out ways around the new regulations.

In my opinion, banks are the Achilles' heel of capitalism. They really do need to be regulated like utilities if their liabilities are either explicitly or implicitly guaranteed by the government, i.e. taxpayers. Banks should be permitted to earn a very low utility-like stable return. Bankers should receive compensation in the middle of the pay scale for government employees, somewhere between the pay of a postal worker and the head of the FDIC. It should be the capital markets, hedge funds, and the private equity investors that provide credit to risky borrowers instead of the bank."