It may not have escaped your notice that this financial crisis has created no small degree of tension between the few hundred titans of Wall Street and the other six-point-five billion people on earth! Taking heed of such public opprobrium, and ever-aware of his poll ratings after a big time bank bail out and the recent loss Massachusetts thanks largely to its misspelling on Democratic election literature,  Barak Obama - now increasingly under pressure in the wake of so much promise yet to delivered upon - may have had enough.

   

Noting the outrage in the US following the financial collapse, and deciding to go after the bankers, Barak Obama has come out swinging, effectively saying "if you want a fight, you'll get one!" But whilst the President has an army to call upon, what weapon does Wall Street have... other than to say - in the style of some archetype gangster: "If you ever wanna see your four-o-one-k gain, we suggest you put down your regulations!"

 

Perhaps it explains just why the market is up sixteen percent since Obama came into office, and up thirty percent since the stimulus package was signed, and why the banks have posted record profits. I mean, we guessed from the rhetoric that the Big O was planning on redistributing wealth - we just never quite realised in which direction! As ever, when rhetoric stalks the corridors of power, let alone the marketplace, facts tend to lend an inconvenient truth, as Al ‘I used to be the next president of the United States' Gore discovered when jet-setting his colossal entourage around the globe lecturing all-in-sundry over the perils posed to the planet by jet-setting around the globe!  

 

In the UK, the Bank of England recently applauded the US President's attempt to reduce the risks taken by banks entrusted with looking after individuals' deposits. In evidence to the Treasury Select Committee recently, Paul Tucker - the BoE deputy governor - avowing his agreement with the spirit of Obama's proposals, threw his weight behind what he believed the President was trying to achieve, stating: "Banks should be less risky businesses if they are going to be funded by insured deposits and if they are going to be highly leveraged".

 

In other words, Tucker reckons there should be new constraints on the risk-taking activities of those erstwhile custodians of the nation's savings. Moreover, not only did he say that banks should concentrate on serving the interests of their customers and not indulge in "betting on the tos and fros of the market", he and his BoE boss, Mervyn King, spoke ardently that the prospects for international agreement on the appropriate reforms for the banking system had been improved by President Obama's intervention. Simply increasing the capital which banks have to hold, as a protection against future losses - which has been the thrust to date of protective measures forced on banks - was not enough, they said, concluding that nothing less than a root-and-branch structural makeover of the banking industry would suffice.

 

Moreover, Mr King has since voiced his view that the banking industry had become too dominated by enormous institutions that strove to be in every activity and in every country, and as such, had increased the probability of the kind of catastrophic banking crisis that occurred in 2008. Over the longer term, the Guv'nor wanted to see a much more diverse banking industry composed of smaller banks and more specialist banks.

With a general election looming in the UK, one can certainly smell the pungent aroma of politics in the air! And in no area have the lines of engagement been more keenly drawn than that of banking reform... and its politicisation, with brickbats and broadsides assailing from every corner, courtesy of political practitioners of every persuasion who, time and again, prove themselves more than capable of demonstrating any disinclination for self-denial!

  

  

Taking our lead, as we surely do, from the American side of the pond, and for a clear indication as to the thinking among the ruling political elite right now, we would do well to analyse the words of Elizabeth Warren, (PICTURED) Chair of the Congressional Oversight Panel of the so-called TARP Troubled Asset Relief Program and staunch advocate of financial regulatory reform.

 

"We had a big boom and bust - which is how the world works every ten years or so," says Warren, further reminding how, following the Great Depression, "...we put in a few new rules governing mortgages, credit cards and other kinds of consumer lending, which gave us a lot of security where we had basically no financial meltdowns until the watershed era of the nineteen eighties. Those rules gave us a lot of prosperity and security," Warrens continues, "but the big financial institutions - in their quest for a better profit model - eventually got the better of the regulators; they got them tamed and off the beat."

 

Warren maintains that it was at this juncture when the big banks fundamentally changed the products they sell: "First, evermore dangerous mortgages, evermore dangerous credit cards, evermore dangerous car loans," she says. "The list goes on. They take those promises from all those American families to pay - after all, they're really profitable - and they slice them and dice them, package and repackage them and sell them, then sell them some more, until it produces three results: first, profits shoot through the roof. Secondly, and even better, bonuses shoot way past the roof and out into space. And third - risk, which surpasses everything. And as soon as that risk plummets to earth - as surely it always will do - someone has always got to pay. At which point, those same CEOs on Wall Street who cocked their snoops at just about everybody and waved their huge amounts of masters of the universe money, their corporate yachts, their Learjets and Colorado Ski Chalets in all our faces, suddenly say to those very same people: "Hey. There's a real problem here, and you'd better bail us out or we're all going to go under!" And so we did, and that was TARP. And now we're about to write the last chapter in that scenario."

 

So, the chips are all on the table. The American are about to write what their - and presumably everyone else's - economy looks like for 50 years going forward. This, says a clearly very angry Elizabeth Warren, is really the moment that will determine the future of America's middle class: "The system must be fixed or the game really is over. And the question surely must be, are we going to tolerate a boom and bust world where Wall Street writes the rules, or are we going to say no, enough of all that crap, what we want is a set of rules whereby it's safe to buy a mortgage; safe to take out a credit card and you know what it's going to cost and risk that is at least manageable."