Must Bankers Always Be Stupid and Overly Opportunistic?

I wrote a post about a month focusing on how regulation won't ever prevent stupidity and excessive opportunism, from running amok in business- even financial services.

This came to mind because of a discussion I had with my business partner and several acquaintances on Saturday morning. We are all involved in some facet of the financial sector, and were discussing the origins of the current crisis, and what would eventually resolve it.

One salient topic was the 'too big to fail' nature of US commercial banks. My acquaintances felt that had to somehow be remedied by the spread of banking assets among other organizations. I, to the contrary, felt that technology has made banking concentration inevitable, as I wrote here, recently,

"With technology and market concentration of banking, we have probably crossed an important Rubicon years ago. Ben Bernanke's answer to a question at yesterday's lunch at the Economic Club of New York, where he spoke, did not, to me, seem to acknowledge the obvious.

At this point, I think Bernanke would do well to accept that the speed with which financial markets can process data and trade, and, thus, the degree to which they have relied on large investments in information technology systems and software have been a significant factor in the concentration of financial assets in just a handful of large US banks.

This will not change now. So, yes, I believe, contrary to Bernanke's assertion, that each of those banks into which Treasury has invested some of its initial $250B is, indeed, 'too big to fail.'"

Perhaps the scariest moment of the conversation on Saturday, however, was when we discussed bank lending officer stupidity in making mortgage loans based on marginal borrower capacities to repay or, worse, no data.

How, I asked, are we to prevent future systemic problems like we are now experiencing, if bankers are too stupid to know what kind of loan to deny?

My colleagues alleged that, if a given banker said "no," another one at the next bank would simply say "yes."

Thus, my argument, which I then voiced, for Federal regulation of core bank lending so heavy as to put the sector on the equivalent of thorazine. They laughed, but then they actually agreed.

You have to ask yourself, how can we ever design and operate a 'safe' banking system if we have to constantly worry that misguided, stupid bank CEOs will push for growth in a sector in which that always means taking excessive risks?

I think it is by clamping down on core, insured and quasi-government-owned banks with inflexible guidelines for loan qualifications.