Basically, we’re putting the nation at risk again. Quite literally, we’re allowing more risk, which then puts the nation at more risk. Since those that provide liquidity to the financial markets would start to invest that liquidity in riskier and riskier investments as if they don’t have a role to play in the broader community, the risk to that community, indeed the country and many other countries, as well, grows and grows until the pinpoint accuracy of their hedges misses a step and we fall like a Jenga tower once again.

Here’s a little more detail about each point I’ve made in this series.

Community banks will benefit from deregulation. The cost of compliance is overwhelming, and larger banks do not care as much about small depositors as do smaller banks, especially when it comes to small-business loans and loans to family farms. However, the banks that will benefit the most are the large banks. Their actions matter than that of community banks because they make up the bulk of the financial activity that runs the economy. Their risky behavior can’t be offset by community banks behaving more appropriately. Plus, the personality of the typical investor gets more and more aggressive and insatiable as their funds grow, making a community bank manager endlessly focused on growth, no matter the risk. Therefore, the community bank manager doesn’t lack the risk-taking behavior. He or she just lacks the funds to make the trades the large banks make. Therefore, they’ll likely try to work their way up and take risky behavior with their depositors’ money, as well.

As far as mergers being necessary to stay afloat, well, yes, they are right on the money (pardon the pun) on that one. However, getting larger and caring less about small depositors now that you’re larger is a character flaw of the bank manager. You can’t get rid of that by making the banks smaller.

It would’ve been better if someone focused on building technology that brings small banks into compliance without having to hire compliance officers. By now, the efficiencies of that technology would be high. The distribution would be high to the point of possibly high barriers to entry. There would be a set group of companies produces the compliance technology, and given barriers to entry and the law of supply and demand, prices for versions for this technology would have stabilized by now. However, money was spent on employees and lobbying so we’re stuck now with tons of money spent on allowing risky behavior that will likely hurt the economy again. Check out the spike in auto loan defaults. There have been record student loan defaults, too, and there are plenty of bonds backed by the assumption that those will be paid. Yet Trump wants to allow them to syndicate more securitized loans and remove oversight, which makes me conclude that we won’t know what happened until it happens and that we won’t be able to untangle the mess to figure out who’s fault it was.

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