After hearing Wendell Potter (formerly of Cigna) describe how he and the rest of the public relations people in the health care industry attempted to diminish Michael Moore when he came out with the brilliant documentary “Sicko”, one wonders how the big banks will handle this:

Moore is right that the system has to be reformed, but there are three levels.  First is at the citizen level.  We obviously need to make sure everyone has an opportunity to participate in the economy, which means universal education, health care, housing, nutrition, police protection, politcal/organizational rights, and environmental/consumer/worker protection.

Second is at the level of financial institutions.  We must have more transparency for investors, the reinstitution of limits on banking and insurance that were repealed starting in the 1980s, and more shareholder control, among other reforms to create firewalls to limit financial spillover when a crisis hits one sector.  Maybe most importantly, we need antitrust law: too big to fail is too big to exist.

But the part that gets often ovelooked is that an investment banker has no incentive to focus long-term.  If a young investment banker makes $10 million in one year and then loses his job for taking high risks that lead to losses in the next, he’s still made that $10 million plus his base for the second year.  If the people in the system have such an incentive to get rich quick that it doesn’t matter much whether they have a job or whether shareholders are well served over the long haul, we that financial system is destined to repeat the same mistakes we’ve seen in the last decade.

We must change compensation structures and to impose and enforce strong criminal prohibitions on this kind of conduct (risk limits, anti-fraud requirements, unbiased ratings agencies).  Failure only guarantees a repeat of what we’ve seen.

Unregulated capitalism isn’t capitalism, it’s fraud with a golden safety net that only saves the big guys.