Fifteen banks were downgraded today by Moody’s to reflect the extra risks associated with participation in capital markets, which have become increasingly volatile. One wonders why a bank, a conceptually perfectly stable business, would want to dabble in what is effectively a lottery? And, of course, this is the kind of lottery that – should you fail to win – it could turn around and kill you. So more like Russian Roulette.
Anyway … the answer as to why they would take such horrific risks comes near the end of the article where the banks are categorized into risk levels. The middle group seems to manage risk effectively at times, but take a a look at why they are in this pickle in the first place.
Moody's said some of these firms still managed risk effectively, even though they rely heavily on their markets businesses to satisfy their shareholders.
Ahhhhhh …. a bank is a business, and banks have made the same transition that all businesses have made in our corporatist society … they have replaced happy customers and excellent products with happy shareholders as the only goal that really matters. (The sub goal of “I want more” remains unchanged, but is now even more dangerous as short-term maneuvering takes over from long term planning as the way to a brighter future. For the one person at least.)
And since an unending streak of growth quarters is the fantasy with which the “I wanna be even richer” crowd has been inured, banks gotta do whatever it takes.
No matter what the risk to our collective well-being.
Pass the Gravol …