Rebuild That Banking Wall

The Washington Times (Washington, DC), May 8, 2008 | Go to article overview

Rebuild That Banking Wall


Byline: George H. Lesser, SPECIAL TO THE WASHINGTON TIMES

A few years ago, an observer in a windowless boiler room in Zurich watched a horde of "gnomes of Zurich" - currency traders - responding to news clips racing across their computer screens, like air traffic controllers tracking blips on a screen and guiding planes in and out of an airport.

A news flash reported that the U.S. Congress had approved the president's budget. The traders reacted immediately. The observer asked the traders' supervisor, "What does it mean?"

"The dollar will go up."

The observer thought for a moment. "You know," he said, "the news is wrong. Whoever wrote that clip doesn't understand the American budget system. All that happened was approval of the annual budget resolution. Nothing really matters until the congressional committees get to work on the individual federal agency budgets."

The chief trader responded, "It doesn't matter. All that matters is that all the other currency traders in the world saw the same news. They will all react exactly the same way. Therefore, the dollar will go up."

Reality doesn't matter. To lemmings, all that matters is what other lemmings are doing.

Bankers all over the world bought U.S. mortgage-backed securities because other bankers bought mortgage-backed securities. It was impossible for anybody to untangle the bundles of mortgages to determine which were good loans and which were not. Therefore, many bad loans were made ("subprime" - like rancid meat - a lovely neologism!). Now we have a potentially disastrous "credit crunch," not because banks don't have the money to lend but because banks aren't making loans, well, because other banks aren't making loans. So, just as too many bad loans were made when the herd was stampeding in that direction, now not enough good loans are being made because the herd is stampeding the opposite way.

A strong argument can be made that we are in the mess we are in because we have ignored the painfully learned lessons of the past:

First: Banks are special. If things go sour for the buggy whip business, or the dodo processing industry, even for newspaper publishers, that is a terrible thing and it will have spill-over effects on their suppliers, their employees and the communities where they do business.

But when banks get into trouble, it ruins everything for everybody. What really put the United States on the verge of catastrophe in 1932-33 was the crisis caused by runs on banks. As banks closed in one town after another, panic spread like cholera, killing economic activity wherever it went. People had no money. Whole towns had no money. People couldn't get paid. They couldn't pay their bills. They couldn't buy anything - even a newspaper.

The runs on American banks followed runs on European banks, sparked by the failure in 1931 of the Creditanstalt-Bankverein in Vienna. And it was that particular fandango - the failure of banks, more than the collapse of stock markets - that brought both Franklin Roosevelt and Adolf Hitler to power in 1933. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Rebuild That Banking Wall
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.