Banking’s Titans finally get their comeuppance
by Rick Ackerman
Posted September 14, 2011
WITH BANK OF AMERICA’S RECENT ANNOUNCEMENT THAT IT PLANS to lay off 30,000 workers, the Great Recession has finally spread its shadow over a sector of the economy that had seemed inured to hard times.
Investment consulting, mortgages, mergers and acquisitions and the rest of banking’s most lucrative concessions have fallen into a more or less permanent funk, and so the banks are faced with the prospect of earning their money the hard way – i.e., through ruthless cost-cutting, and via fees on checking accounts, credit cards and other transaction-based services.
How dull! Embarrassing, even, since financial bigwigs who were pulling down seven-figure bonuses just a year ago thanks to the Federal Reserve’s extravagant bailout terms, will now be fighting to earn their base pay by nickel-and-diming their customers to death. Imagine a loan officer having to concern himself with something so mundane as a local businessman’s request for money to finance inventory.
We feel sorry for the many bank employees who are about to lose their jobs, especially since they face such bleak prospects for re-employment. With respect to the fate of banking’s top brass, however, it’s going to be hard to hide our schadenfreude if a few of these prodigious paper-shufflers wind up living out of shopping carts. Ditto for securities traders at the big banks, for they have turned the markets into a giant casino, exploiting mathematically arcane opportunities that have absolutely nothng to do with the business of making, buying and selling real things.
In recent years, stock and bond markets have almost completely decoupled from the real economy – so much so that they will probably have to collapse into ruin before honest markets can re-emerge – markets that serve the real commerce of the real world. The epic fraud of financial markets reached its apotheosis with high-frequency trading, a tactic that uses computer-driven algorithms to exploit bid/offer spreads that exist for mere nanoseconds. Because these trades can move no more quickly than the speed of light, it is necessary to execute them on servers that sit on the trading floor rather than on microprocessors associated with distant satellite feeds. How long could that game go on?