During the global financial crisis, many banks were on the verge of collapse. The collapse of one big bank could trigger the collapse of other banks, risking the stability of the entire global financial system. The US Government stepped in to provide billions of taxpayer funds under the TARP (troubled assets relief program) program to stabilize and restore confidence in the system.
The taxpayers were shocked that these bailed out banks continue to pay huge bonuses to their top executives. The Government decided to introduce caps on the salaries and bonuses that could be earned by these executives.
Many bailed-out banks have decided to return the TARP money, so that they can continue to be relieved from the caps on these huge bonuses. They are able to get money from their shareholders, as the global financial system has now been restored. They can go back to the "good old days".
How did the banks make huge profits during these "good old days"? They take big gambles. They bet billions of dollars on financial trading and on creating asset bubbles, through housing, mergers and acquisations, leveraging and financial engineering (also called "innovation").
If they get it right, they make billions of dollars of profit. If they get it wrong, the hold the global financial system to hostage.
The world has to put a stop to these huge gambles. The banks should be banned from these types of gambling. They key role is to do basic banking services, such as collecting money and giving loans to businesses and households. It may be boring, but it is a valuable service that builds real wealth.
As long as the governments condoned and even encouraged such gambling behavior, in the name of creating "financial hubs", the global financial system will continue to be at risk.
Tan Kin Lian
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