11/03/09 Stockholm, Sweden –
Jeremy Grantham, chairman of asset management firm GMO, has released his latest letter and he’s focused on how the financial system should be redesigned. He offers a valuable two step process for potentially avoiding a second wave of financial crisis.
The first step he suggests is banning or separating the aggressive proprietary trading at banks that has made them seem more and more like hedge funds of late. Grantham points out that the trading has created powerful conflicts of interest with bank clients and the mentality, especially with regard to compensation, has been destructive. Trading has pushed greedy personal ambition over healthier long term corporate goals, and it’s been done with taxpayers left holding the bag when something inevitably goes awry.
The second step Grantham recommends is getting the Justice Department, and whoever else may be needed, to finally crack down on too big to fail banks. Experience has taught us that smaller banks have a simple but powerful advantage for society — they are not too big to fail. He recommends megabanks be divided into smaller and more manageable sizes. The change can be made… it’s simply not getting done.
The whole letter is worth a deep read. It offers many more insights into how the nation has suffered from the growth of the financial industry, the explicit disadvantages of too big to fail banks, and other hot button issues. The full 4-page piece begins on page 10 of Jeremy Grantham’s 3Q 2009 letter discussing lessons not learned in redesigning the financial system.
Rocky Vega
Rocky Vega is publisher of Agora Financial International, where he advances the growth of Agora Financial publishing enterprises outside of the US. Previously, he was publisher of The Daily Reckoning, and founding publisher of both UrbanTurf and RFID Update -- which he ran from Brazil, Chile, and Puerto Rico -- as well as associate publisher of FierceFinance. Rocky has an honors MS from the Stockholm School of Economics and an honors BA from Harvard University, where he served on the board of directors for Let’s Go Publications, Harvard Student Agencies, and The Harvard Advocate.
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Great idea. Let’s get the government tinker in yet another area of our “free” market system.
What a joke!
What “free market” system?
The idea of a “free market system” exists only in the first split second of a “financial handshake” between two parties.
Immediately after one or the other strives for the “competitive advantage” that usually ends up in great conflict.
As long as we have politics mixed up with finance we will have trouble…We need a “firewall” of strict regulation between the brutal, unconscionable power of capital and the necessary needs of society.
The “free market” concept is an illusion at best.
while i support mr grantham’s suggestions he has failed to pay his clue phone bill….
the tbtf banks will never be broken up because they house the fed’s interest rate swaps which it uses to manage interest rates to zero or wherever else it wants them….
these irs produce nearly insatiable demand for treasuries. without addressing the irs it is utterly impossible to consider banking reform. sorry.
he might have spunk but he will not get the job done.