Financial System Too complicated? Probably not

It is not complicated. It is just the people in charge like to think they are smarter than everyone else.....and try to keep everyone else thinking the process is so complicated so they don't question those running things. The government still controls money flow and the banks are just a conduit for distribution. The system works most of the time reasonably well but the major fault is that the government has the best option--the banks----and several other options that are far less effective. The banks have learned that if they are big enough (allowed to get big enough) they can manipulate the system and strong arm the government. They will continue to exploit this fault. They will maximize profits and ride the wave to the end of good times, then hoard cash just enough to panic the entire world...(the months right before a major election cycle will always be the best time to ask for funds and threaten to shut down the circulation of capital) at the beginning of a recession. We have seen it this year and last year. Banks may now be making profits again and could earn their way out of the hole. However, they have milked the system and the tax payer for about 18 months. I am not sure the new regulation will prevent similar situations from occurring the future. The economy needs to grow or we all lose out. The assumption of growth is always factored into any economic forecast unless we are in a recession. We likely will never hear the government forecasting negative GDP growth if we are not in a recession already. Banks do the same thing and continue to take collateral based on future growth as a recession begins and to some degree while it is in progress. Asset price depreciation of more than 5-10% is enough to cause major problems. It is a huge issue, as we have seen, if real estate is declining excessively across the country. The reserve system of banks is not set up to tolerate 25% losses in asset prices nationwide and banks have a difficulty generating earnings or circulating funds if the collateral still declining. The derivatives and leveraged products just multiply the losses just as they multiply the gains.