Casino Capitalism: Can It Be Contained?

We may not be able to change the smugness and arrogance of the Goldman traders who testified before Congress but we certainly can pass tougher legislation that could put them in prison if they break the law.
06/29/2010 05:12 am ET Updated May 25, 2011

"I don't want casino type jobs at our big banks. It is not acceptable for big banks to gamble with our money and I would hope our banks would stop their gambling. I have no problem with casinos if you are in Las Vegas and you want to gamble, "stated Simon Johnson, the author of the informative new book 13 Bankers which focuses on the background of the financial crisis, in a talk at Johns Hopkins SAIS on April 26th.

The chairman and CEO of Bertelsmann Foundation Dr. Gunter Thielen, speaking at the Bertelsmann/Financial Times conference on the worldwide financial crisis in Washington recently remarked , "If we continue with casino capitalism, then sooner or later the legitimacy of our entire economic system will come into question on a global level.

And, we all heard Senator Claire McCaskill at the hearings with Goldman Sachs senior executives exclaim, "You are all the house, you're the bookie. [Clients] are booking their bets with you. I don't know why we need to dress it up. It's a bet."

The casino comparison from diverse onlookers on the financial crisis is an apt and correct one. While the government regulators were asleep or looking the other way they were not regulating Wall Street. Simon Johnson feels that the "regulators are now completely captured by the big banks."

It is beyond me that there is not more outrage around the country. After watching the smug and arrogant Goldman executives, one felt like demanding that they be contrite and ashamed of what they had done to our financial system. Yet there they sat, looking bored, not being back in the Big Apple making their bets so they can rake in their bonuses. Can anyone seriously explain how you bet against investments that you are making to your clients? Is there not fraud or at least misrepresentation involved in these transactions?

And, let us not forget that Congress was also asleep at the wheel and did not foresee or try to prevent the financial crisis. While the traders from Goldman played their role as arrogant and aloof from the financial storm, the senators all performed their roles as outraged citizens who yelled before the cameras so the voters could see their populist anger. Where was their outrage while the economy was tanking and people who could not afford homes were given loans as if they were candy?

While Congress and the administrations' answer was to spend boatloads of our money on the stimulus package ,the head of Pew Research Center Andrew Kohut, speaking at the Bertelsmann/FT conference said, "The public feels that the stimulus and TARP did not work".

While Americans continue to be bombarded by the reckless casino attitude and practices that exist on Wall Street and in our largest banks we see the rest of the world is not immune from similar economic and financial problems--most of them man -made.

Greece is trying to keep its head above water and not default on its large debt. Portugal and other European Union nations are also reeling from a large debt and too much public spending.

Having worked at the European Commission for fifteen years and given many talks on the euro in its early years I would point out that the introduction of the single currency was more of a political event than an economic one.

If this was purely an economic problem across Europe we would see a different outcome. However, the EU countries have too much invested in the success of the euro to see it collapse. They have too much political capital involved to let the single currency fail.

Europe and the U.S. are so intertwined with trade and investments that a collapse of the Greek economy (some are calling Greece the Lehman Brothers of Europe) would affect not only the rest of its EU partners, but America as well.

Are countries like banks too big to fail? Are traders at Goldman Sachs really allowed to go long and short on the same trade? Are government regulators who didn't regulate beyond being fired?

As Simon Johnson stated at his talk at Johns Hopkins, "There is no social value for having large banks. And, big banks should be able to fail."

As anyone who has taken Economics 101 knows the laws of capitalism provide winners and losers. If you provide enough campaign money and lobby effectively I guess that negates you from losing in today's America. This has to change. If traders take unacceptable risks and do it from our banks they need to suffer the consequences when their deals go south.

We should break up our largest banks, as being bigger does not provide any guarantee of anything these days except, it appears, immunity from any wrongdoing. We should control the outrageous behavior of casino gamblers posing as bankers and seriously curtail their activities in trading that cause more harm than good.

Big is not better and wrong is wrong. Get some serious financial reform with real teeth that can send people who break the law to jail. Move our casinos from the banks and insurance firms in New York back to Las Vegas where they belong. As Simon Johnson said, "Bets in Vegas don't upset the U.S. financial system".

We may not be able to change the smugness and arrogance of the Goldman traders who testified before Congress but we certainly can pass tougher legislation that could put them in prison if they break the law. Casino capitalism has to end before it is allowed to bring on another financial crisis.