Banking Procedure

Mark Thoma tells a good story when he get started, and his version of ‘bubbles’ has a great deal of relevance. There remains a surreal amount of underlying causation left unexplored. One can start this discussion by stipulating that bubbles originate in the creation of Consumer Demand. Incontrovertible fact states Business practitioners earn high Wages or Profits only with a high level of Sales in their gifted endeavor. This means that their Paycheck depends upon convincing the Consumer that they need some Product or Service. Business personnel, as expected, become quite good at not only Advertising of their particular Service, but at the acculturation of the Consumer to compulsive purchasing. It is instructive that most successful Individuals express early on a profound ability to discern the difference between Real and Generated Product and Service desires, committing only to the Necessities.

The high level of Advertizing Costs amidst other Production Costs indicate this Need to generate Consumer Demand. Deliberate Business decision has much to do with the creation of bubbles. There is a famous Story in some circles of a Developer who conducted an economic survey, and found that his area of development could only accommodate around 500 Homes based upon the base Salaries of the Residents in the area. He immediately doubled his Advertizing budget, starting a campaign of migration to the area, and continued his original Plan to build 2000 Homes in the area. Here is where I bring in the Concept that bubbles are deliberate in design, though free of overall Concept. My Point states individual Business personnel utilize malfeasant Business decision-making to maximize their own personal Income, expecting the overall health of the economy will rectify their decisions. The Reader should not criticize such behavior, until One has paid for his children’s College education.

Bubbles are inevitable in this Business context, and there resides only one Curative to deflate such bubbles before they adversely impact the overall economy–here is the definition of the role of financial institutions. Here is the exact location of the demand that efficient Business practice by established rules of procedure need be positioned. The current Crisis is a failure of Banking practice; one where the basic Rules of Business were ignored, again for reasons of personal gain. Banks, at least, should be proscribed from Bonus awards based upon the levels of Deposits registered, or total value of Investment loans made. Bonuses should be granted to Bank Employees only for successful completions of Repayment schedules of issued loans; something which should be taken out of the hands of individual Bank management, and placed within the realm of Regulatory agencies. A firm stand by the Fed and Bank Regulators would save by the effective reduction of bubbles. lgl