Books About Banking: Why Did We Bailout the Banks?

A surprising number of bank books have been published during the past 10 years. Why is this and what does it mean for most of us who are not closely involved with the banking industry?

Certain books frequently become relevant and popular because of problems in society at large. Other books become "must read" because they address specific issues that directly impact our daily lives. A third category of books becomes popular because they entertain us, often dealing with gripping drama that makes us wonder how the story will end.

While bank problems often qualify for the first or second category, banking stories have rarely entailed much in the way of entertainment value. However, the financial and banking chaos that emerged during the past decade has not only made it clear that these problems can change our lives forever but has also left us with a dramatic plot that keeps changing before our eyes. Here are some books that will help unravel at least some of the underlying mysteries.

Yes, these books about banking are all based on true stories and actual events.

Will Banks Survive?

Banking problems have surprised many people because for a number of decades bankers were viewed as the last individuals who would ever take unnecessary financial risks. To a very large extent banks were not legally permitted to take risks as a direct result of the Glass-Steagall Act that was passed during the Great Depression era banking reforms of President Franklin D. Roosevelt. This legislation was intended to stop excessive bank risks that were one of the major contributing factors to the financial chaos that led to the Depression.

Eventually bankers came to resent the regulations imposed by the Glass-Steagall Act and lobbied unsuccessfully for many years to remove what they considered to be excessive restrictions on how they ran their banks. The banking institutions finally succeeded when this law was deactivated in 1999. However, there was a banking crisis during the 1980s involving the failure of many savings and loan associations (S&Ls) because financial regulations were removed and banking officials promptly assumed excessive risks. Despite that graphic evidence of what happens when banks have less regulation and undertake more risks, the removal of Glass-Steagall proceeded.

One of the best bank books that effectively ties the events of the S&L crisis to recent banking problems is aptly-titled "The Best Way to Rob a Bank Is to Own One" (by William K. Black).

Why Did We Bailout the Banks?

Why do governments save banks from their own mistakes? The most recent bailout of banking institutions occurred during 2008. The best bank book about this troubling financial event is by Neil Barofsky and is simply titled "Bailout," although there is a longer and informative sub-title: "An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street." Like many books about banking, this is stranger than fiction at times. This is a behind-the-scenes accounting of the most recent banking bailout.

Sheila Bair was in charge of the Federal Deposit Insurance Corporation during the recent bank chaos and bailouts. She is one of the few people who accurately identified the subprime mortgage crisis before it brought the banking system to its knees. You should listen carefully to what she has to say in her book, “Bull by the Horns.” By the way, this is what she had to say about the bailout — “The banks should have been let go.”



For a few other relevant perspectives about banking, please visit the following website to view a SlideShare presentation that I prepared —

A Few Candid Comments About Banks

Good News and Bad News About Business Finance Planning

The past decade has provided an array of changes and problems for business finance planning. Because of the growing need for flexibility and contingency plans, a recurring piece of wisdom has emerged from some of the business and finance chaos: 

Always Have a Plan B.

Plan B is the good news.

So that I do not bury the lead, I want to make it crystal clear that the expanded appreciation of how important Plan B can prove to be for any individual or business is at the top of my list for the good news portion of this business finance planning discussion. Of course, I have never hidden how I feel about the critical value of having a Plan B. As you can see from the mosaic image which I produced above, I rarely miss an opportunity to feature Plan B in a front-and-center kind of way.

Another purpose for the business finance planning mosaic was to demonstrate in a visual way that everything can fit together quite nicely with a little (or a lot) of planning energy. Key concepts like strategy, solutions, experts, and help also deserve a seat at the table when formulating your own Plan B.

How important is Plan B?

To say it as succinctly as possible, always having a Plan B is a winning strategy. Having a solid Plan B mentality during the past five years has more often than not proven to be a critical difference between business survival and failure. What is your Plan B?

Always Have a Plan B

The bad news:
You can tell there is an oversupply of bad news when the primary good news is the increased appreciation about the importance of having a Plan B.

I am sorry to say that there is more bad news than there should be. This is due in large part to a political climate that is increasingly governed by the largest corporations, big banks, and of course their lobbyists. When the incomes for average individuals decline during what is hailed as a "recovery" by some biased politicians, you have the first clue as to the underlying problem that small businesses and individuals are currently facing.

During the last three years, the average income for individuals has shrunk from $51,000 to $45,000. Meanwhile corporate profits and the stock market have done very well. As they say, the rich get richer and the rest are still searching for Plan B.

Banks are still hoarding their riches and not lending normally to either small businesses or most individuals. In their own little good news bubble, the banking industry has launched an aggressive campaign to move into what they see as the next front. The world of payday lending programs is beckoning to the bankers. How could any respectable banker not pay attention to payday loans when they offer the easy opportunity to charge annualized interest rates of 300% to 600%? Never mind that they are illegal in some States (as they should be). This is why banks pay the big bucks to their lobbyists, isn't it?

The bad news lesson to be learned from what banks are now doing with the money used to save them just five years ago is to realize what they are not doing with it at the same time. Commercial mortgages and working capital financing are just two of the things that most banks are not presently doing with their money in any significant way. By the way, many banks have also resumed their investment activities involving financial derivatives. For those who are not aware, the use of risky real estate derivatives by the banking wizards brought the economic world to its knees several years ago. I can only suppose that the bankers have figured out what they did wrong and are going to test their new theories with more taxpayer money.

Unsurprisingly, my small business finance planning solution for addressing the abundance of bad news is as follows:

Always Have a Plan B.