070525_hamptons_vmed_2pwidec1Last week Mark and I were in the Hamptons. Okay, I’ve always wanted to say that, but truth be told we were in Long Island looking for a place to live and had to DRIVE through the Hamptons on our way to see the lighthouse at Montauk Point (a must see for everyone). SIDEBAR: Bernie Madoff (pronounced Made-off as in with your money has a house in Montauk.

Anyway – have you ever listened to something on the radio and the scenery around you gets burned into the memory? As if you are watching television, the words mesh into the windshield and somehow make sense? Or not. Well, we were listening to NPR and Marketplace came on. The guest was Charles Handy, London Business School Founder and Claremont Graduate University’s Drucker School of Business Professor. AND, he has a lovely British accent.

The interviewer was Kai Ryssdal. The subject: the banking system.

Kai cuts to the chase: How did we get in this mess?

Charles: “I think we got carried away, you know, at least the bankers did mainly. After all, for many, many centuries, making money out of money has been regarded as rather a bad thing. In fact, it used to be called ‘usury.’ ”

Me: “Oh hell yes!”

Charles: “They forgot what their proper job was, in my view, which was to take money from some people who had some to spare and to pass it on to people who could use it usefully and profitably.”

Me: “That’s the CREDIT UNION cause!!!!”

Kai: “But from purely a business proposition, if you can’t make money giving a loan, why do it at all?”

Mark: “Good question!” (former CFO, current Financial Advisor)

Charles: “That’s right, but you must make sure that you don’t exceed the money that you’ve been given by the people who are saving it. These people went wild actually. They went way in excess of the ratios that normally were deemed respectable..”

Kai: “It seems to me the solution, when we have one of these crises, is always a variation on what I suppose you could call the “big three,” right. One is increased transparency, the other is increased accountability, and then some kind of regulation. But we’ve tried all of those things in crises past, so what’s the answer this time?”

Charles: “Get them smaller?”

Kai: “Get the BANKS smaller?”

Me: “Oh hell yes!”

Mark: “Shhhhh, listen.”

Charles: “Yes. Get the banks smaller. I’m actually sure. Markets work well when there are a lot of players, and if one falls out, the whole system doesn’t crash. When we crate organizations that, in the words of some people, are too big to fail, what we really mean is we can’t ALLOW them to fail. So I really think that we’ve allowed the banks to get too big. So I think the answer is basically to de-structure them.”

“I also think we really should stop putting everything in one basket. I think investment banking should be separated out from retail banking. They contaminate each other.”

Me: “Wow. You mean bigger is NOT better? What about achieving economies of scale? What about being a full service financial institution?I guess that didn’t work, did it?”

Mark: “Shhhh. Listen.”

Kai: “So now what then?”

Charles: “I’m not sure the solution is going to be easy to get by, and I think it’ll take about three years for things to bottom out. But there may be some good news in all of that. I mean we may get back to a saner kind of world – what Adam Smith (Author of The Wealth of Nations) called ‘cultivation’ or ‘civilization’ — where we don’t all sort of spend our life trying to make money, to buy things we don’t really need to impress the neighbors, and so on.”

“I’ve often said that capitalism, particularly in America, is a very exhausting business. It tires people out.”

Kai: “Charles Handy, than you very much for your time.”

Charles: “Thank you very much. It was wonderful to talk to you.”

Me: “Do you think that will actually happen?”

Mark: “Not anytime soon.”

TODAY: Morgan Stanley, Citi plan $3 billion broker bonuses.

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