Investment bankers have always looked down on regular bankers.  Investment bankers made way more money.  The regular bankers were upset about this.

Investment bankers raised funding for enterprise.  Bonds, preferred stocks, new issues.  Whatever. They could sell the new funding and make huge commissions.  Regular bankers couldn’t do this.  They were forced, by regulation, to make a little money steadily and not take any risk. 

So, the investment bankers coveted the regular banking deposit base because here was a fresh, huge, source of money to put into investments, risky or not.  Commercial bankers coveted  investment bankers’ ability to make lots of money convincing savers that they could make more money than CDs if only they would invest. 

Regulation kept the two industries apart.  Until 1999 when the rules were changed.  After that, the Depression era Glass Steagall act was dissolved and investment bankers were allowed access to depositor funds, and commercial bankers were allowed access to new, riskier, investment products.  Both camps gained income as a result.  Nobody thought about why the distinction was in place to begin with.  And even if they did, the money to be made swept away caution.

The result was inevitable.  Risky investments appeared to be sober, and banks became drunk.

We need to re-establish the distinction between investment banking and commercial banking.  The two enterprises are wildly different.  Even today, with all the monetary, and potentially huge fiscal spending on the horizon, we still haven’t corrected the 1999 legislaion separating the two.  Commingling the two is why we have the current crisis.

Economist’s View has a good post by Professor Mark Thoma about trust and information.  His post also elicited a number of excellent commentaries.  Also at the same site is a post from Professor Joe Stiglitz, actually a commentary by Stiglitz which appeared in the New York Times.  Again a good read which elicited numerous excellent commentaries.

One of our blogroll favorites The Oil Drum has an excellent post on the credit crunch and its deleterious impact on commodity companies, commodity pricing and future availability.

A short answer on how long this recession is likely to last is contained here.  Also at the same site is this overview of the week that was.

Meanwhile, as the credit card industry appears ready to get some taxpayer bailout money, here’s a cautionary article about the industry and the changes that are needed first.  And also at this site is another article about how GM can be saved quickly and efficiently using both the tools of Chapter 11 filing and government assistance.

A suggestion from the voxeu.org that central banks should be buying selected traditional securities that are obviously undervalued right now.  The Hong Kong Monetary Authority did this during the 1997-98 credit crisis and made about $14 billion in profit.   Concentrated buying can, in an oversold market, effectively shake out short selling speculators who make a profit from declining stock prices.  Read the piece here.

Then, an interesting piece from the London Banker.  Here, the author points out that the non-Democratic governments of China and Hong Kong are using their stimulus to support small businesses and to limit credit to financial speculators.  The piece takes the interesting point of view that what we save in crisis is what we value most.  The so-called Democratic countries have rushed to save speculators, Wall Street and bankers–the very people who designed and foisted on everyone else this financial implosion. 

“As (Sherlock) Holmes would have considered a child’s life worth more than jewels, I consider the workers and businesses in the real economy as meriting greater protection than the financial elite. It is not merely that I think the financial elite little better than criminals for their irresponsible excesses of recent years, but that I fear long term harm and political instability will come from neglecting the needs of the real economy,” writes the author.

And if you’re just too tired of all the heady news and policy stuff, visit this website blog about two couples who’ve decided to chuck it all (well, much of it anyway) and take three years off on a cruise in a converted skow, or some such boat.  John Clayton, a professional journalist, is one half of one of the couples and following their travels makes for relaxing reading.

A wonderful Thanksgiving for the Beezer extended family and friends.  Lots of delicious food, including baked lamb from the Greek family side.

Day didn’t start out at all well, as the TV news loop continuously reported on yet another deadly attack by the murderous bigots of Islam in Mumbai, India.  Turned the TV off.  Beware of any religion that tries to turn women into furniture and hide their personalities.

With the TV negative feedback loop shut down, talk turned to fond memories and future plans.  One friend reported that her bengal cat business KlassiKbengals.com was doing well, while a family member updated everyone on her new business Yarngardennh.com, which opens today.

Micro business marches onward, recession or no.  Here, down on the street, are hundreds of thousands, if not millions, of very small business endeavors.  Just drive down Main Street in any small town, or any borough of a major city.  Most of the business’ probably have 10 or fewer employees–including the owner(s) who work there 50 hours per week or more.

And this is not just an American phenomenon, of course.  Any television footage of, say, Mumbai India, shows the myriad of small businesses packed into that huge Indian city.  This teeming, continuous activity, is probably understated and poorly represented at the national government level.  Small business, at the national level, is probably understood to be businesses with fewer than 1,000 employees but more than  100.  This is the basic level where data is collected by a business in a thorough fashion, and thus can be accessed by economists studying the economy.

But smaller than that?  Here the data is not so thoroughly collected probably.  Just don’t have the time, frankly.  This teeming messiness contributes mightely, no doubt.  But it’s a big variable in someone’s economic formula.  Pretty much a guess about what, and how much is going on.

So black Friday is now on.  Historically the strongest day of the year for retail sales.  Hope Yarngarden does well.

When 3 million jobs are at stake, you do something about it if you’re a government.  Also, the UAW and the Big Three have already made structural changes that will make their costs competitive in the next couple of years vs transplant competitors like Toyota and Honda.

Read this report from the New Republic.  It details what changes have already been made and when these changes will have impact.

Bottom line.  The Big 3 have already put in place important, competitive moves.  Along with the UAW.  Now they need government help to manage through a deep recession which is hurting the entire industry, not just the Big 3.

Here’s a little item worth somewhere north of $2 billion.  Ever hear of Sale In Lease Out (SILO) contracts mass transit authorities apparently made, mostly, with European banks?  Well, these SILOs went south but left large termination penalties that the transit authorities now face. 

Read this report from the Tax Foundation website.  You just can’t make this stuff up.

And AIG is here too with an insurance product.  Beezer has come to the conclusion that AIG attempted to insure the entire world against property market risk.  Which is impossible, of course.

An impossible concept, sold in impossible ways, sliced and diced in impossible securities.  No wonder the amounts quoted are in the trillions of dollars.  Forget it.  The value of an impossible security is zero.  The world was never insured against market risk to begin with.  Anyone who actually paid for such an outlandish concept has lost their money.

According to hedge fund manager Hugh Hendry , in an interview on CNBC, socialism ends up being a moat constructed to protect the wealthy.  Manager of Eclectica Asset Management, Hendry makes for a very interesting interview and Beezer recommends anyone who can, to watch this 15 minutes of TV journalism.

CNBC chose to headline this bit of tape with Hendry’s assertion that the US will end up nationalizing its banking system, but the value of this back and forth interview comes from Hendry’s philosophical statements regarding socialism, not his banking statement.

Hendry, who’s fund is up 40% just the past two months, has a disarming honesty.  He makes an interesting point.  Hendry says socialism is a system that builds a “moat” around the wealthy.  It protects them.  The government, through socialism, ends up insuring the wealthy class and its assets.

If socialism is in the moat building business, then why can’t it build a moat for the ordinary citizen, instead of the wealthy one?  Universal health insurance and retirement funding are the two “moats” that should be part of a citizen’s life, in a better world.  Where is it written that the engine of free market capitalism cannot be used to construct these two “moats” for the ordinary person, as opposed to providing them just for the wealthy, or government employee?

Maybe Obama and his coterie will end up being just another variation of socialism as moat builder for the wealthy.  Maybe not.  America, after all, is the product of ordinary citizens going in a different direction.  Messy in the extreme, and prone to sometime spectacular failures.  But indefatigable.    

Hendry is issuing a caution.  A European, he is well aware of the stratification of Europe’s class system, and he sees how socialism has basically protected the centuries old family wealth.  Fine.  Forwarned is forearmed.

Maybe America will show how to build moats around the ordinary citizen, while allowing free markets and their constant “creative destruction” to co-exist.

In crisis, such as the one currently, saving a system obviously includes saving wealth, and the wealthy.  It’s not as though the ordinary and the wealthy aren’t part and parcel of the same picture.  This is a distinction without real import, actually.  Like saying “girls are different than boys.”  A true statement, of course, but by itself without useful meaning.

But saying that government can provide two important “moats” for all citizens of ordinary means, while still allowing the dynamism of free markets to flourish, is a statement of purpose with real meaning.  Hendry’s European skepticism aside, maybe that country “across the pond,” can accomplish something, as it has done before, that others said couldn’t be acheived.