Georges Clemenceau famously said that war is too serious a matter to entrust to military men. I believe that money is too serious a matter to entrust to bankers, and every few years the bankers prove me right.

American bankers’ primary business is a little cash flow scheme of borrowing short and lending long (e.g. borrowing for 60 or 90 days at 2% and lending for 30 years at 6%). It works pretty well and very profitably with a little bit of due diligence. Yet the bankers periodically abandon any sense of propriety or responsibility, create a greed-fueled catastrophe, and then expect responsible borrowers and the American taxpayer to bail them out. Worse, they keep getting away with it.

Protecting such people from the consequences of their actions creates a moral and economic hazard; how can people learn responsibility if they are not held accountable for their actions? When a pool cleaner falsely claims $180,000 per year in income and a loan officer accepts this at face value, the bank deserves to fail and the pool cleaner deserves to lose his home.  When the foolhardy do not suffer the consequences of their actions, responsible people lose incentive to behave responsibly.

Congress learned from the Great Depression that allowing banks to enter the investment business risked destabilizing them. In 1933 the Glass-Steagall Act prohibited bank holding companies from owning other types of financial services, asking banks to stick to banking business only. But 66 years later the lesson was forgotten, and in 1999 this provision was repealed. As a result, commercial banks, investment banks, insurance companies and brokerages started offering each other’s services. This may or may not have introduced unavoidable conflicts of interest, but it certainly introduced an unmanageable level of complexity to financial services. Exhibit A: the failure of Bear Stearns.

Now the Fed and the Congress are falling all over themselves to bail out incompetent banks. I believe the satirical newspaper The Onion put it best: "Giving money to institutions that failed at their only job, which was to have money, may not be the best strategy."

Naturally we should assist individuals who have been legitimate victims of predatory lending practices, but bailing out the blundering banks and their unqualified borrowers will only postpone – and intensify – the eventual consequences of an untenable and extremely foolish business model.