BANK BATTLE AHEAD

In its forecasts for 2011, an important investment bank, published the following ten commandments to address the banking problem (between brackets, my remarks):

1.-ALL BANK ASSETS SHOULD BE VALUED AT MARKET PRICE. If some assets are illiquid, one-tenth of the position should be sold in the market and the resulting price in the market should be sold and used to account for the rest of the position at market value on balance sheets. This step will help restore confidence in the financial system.
(Have you ever wondered what would happen if all of your usual bank customers take out their money? (This is already suggested by the ex-footballer Eric Cantona). Currently the collection of cash deposits offered by banks are not intended to be used to extend credit (which should be the bank's core business) but in most cases to pay for interbank lending. So there will be more or less capitalized banks. Do we have transparent mechanisms to know what is the situation of our bank?)

2.-THE BANKS RESULTING INSOLVENT WITH THE MARKET PRICES SHOULD BE SETTLED THROUGH A CLASSIC BANKRUPTCY PROCEEDING. If they were too big to fail, they should be nationalized and later redeem all shares from shareholders, let the bondholders will write down losses, convert the bonds into shares and then revive the bank with new shares. This step will help reduce moral hazard and speculators will answer for their actions, RATHER THAN REQUIRE TAXPAYERS TO DO IT.
(If a bank buys Sovereign debt at around 10%, they know they're getting into a very dangerous business unless they have the support of the European Union. If the EU covers the risk of default, it´s getting the side of the banks and not the citizens of the country which will have to pay abusive interest by raising taxes and cutting social spending.)

3.-ALL GOVERNMENT GUARANTEES FOR THE FINANCIAL SYSTEM SHOULD BE ELIMINATED. This includes insurance deposits and bond issues. It should make it clear that any defaulting bank will have to fend for himself. No bank should be "too great to let fail" and all banks should be subject to the harsh discipline of the (interbank) market.
(Spain guarantees 100,000 euros per person per bank. In the case of Bulgaria is 100,000 Levs (50,000 euros). This encourages investors to bring money to these countries because it gives them security, but also distorts the market. The banks that should demonstrate throughout their capitalization and we ought demand it as customers, and not be blinded by the brightness of profitability. If the bank is assured by the State, in the end we are assuring ourselves. It shouldn´t be that way.)

4.-THE BOARD OF DIRECTORS OF THE BANK SHOULD RESPOND PERSONALLY IF THE BANK BECOMES INSOLVENT (as with the old financial-sector partnerships). This step will make the boards act more responsibly and avoid risks.
(This point I think is very clear. Any work not only in the financial system, is defined by its responsibilities, not privileges. Managers should collect only throughout bank's shares and I´m sure that they will keep its health.)

5.-All state budgets should be balanced at least once based on spending cuts. Although it´s not very nice, should be done to stabilize the public debt markets. The cuts should focus on social benefits and pension systems, which are extremely understaffed and are not unrealistic about the future tax base. This step will help REDUCE BORROWING GOVERNMENT COSTS to one acceptable level.
(In continuation to the previous point, it´s necessary to create mechanisms to monitor the politicians personally and, in parallel, cut their privileges.)

6.-The government should make tax cuts (especially taxes on income and capital gains) drastically in two years. This step will LET THE CAPITAL ARRIVE TO SMALL AND MEDIUM BUSINESSES THAT GENERATE THE MOST OF GDP GROWTH AND JOBS. Similarly, it will make more attractive TO WORK THAN TO RECEIVE GRANTS.
(In comparison with Spain, the U.S. has a much more dynamic labor market for promoting fiscal and legislative competitiveness. Companies hire because they are given facilities and workers look to be hired.)

7.-The central bank should tighten monetary policies to encourage savings and discourage debt financing. This will help clear the market for savings and investment.
(Do you remember when banks gave 110% of the value of the home? Do you remember when the government encouraged us to spend money?)

8.-Interest expense should not be tax deductible, to discourage the over-financing through credit.
(Also the old the deduction for home mortgage, everybody thought it was great, but made a big distortion of the market.)

9.-DEFLATION SHOULD BE GOOD NEWS, to be a way to get cheaper products and restore competitiveness of exports.
(Several books and articles on economics warn us from the dangers of deflation and I do not understand why. If prices go down is better for everyone, except for banks that rely on statistics and also have plenty of empty houses.)

10.-It should be allowed to fall the wages, because unit labor costs (adjusted for PPP) is too high in the western world.
(This point is hard, but we must be aware that our wages should be reasonable for our company and we have to produce a benefit that justifies it.)

Conclusion:
-We are the bank customers in the current system but it seems that they are our customers.
-We must create a momentum for the system to change and for this we must enforce the divorce between politics and finance.
-There will be war between the banks because the fewer left, more money for the remaining.

Please be aware of this.