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Sunday, March 16, 2008

COMBINING BANKS AND BROKERAGE FIRMS WAS A MISTAKE

COMBINING BANKS AND BROKERAGE FIRMS WAS A MISTAKE

Several years ago banks and brokerage firms were separate entities. Then banks wanted to get into the brokerage business and vice versa. Each wielded the argument that each would become stronger entities as a result of this new diversification. But what we did not expect – but we should have – is the fact that brokerage firms are in the business of leveraging investments, which is far from the conservative goal of most banks before the diversification. Brokerage houses are essentially gambling houses, and banks should be conservative entities whose goal should be the preservation of capital.

IT WAS A MISTAKE GRANDE EXTRA ORDINAIRE TO HAVE MERGED THE FUNCTIONS OF BANKS AND BROKERAGE FIRMS.

There is no doubt in my conservative mind that Banks must not be allowed to fail because it would result in devastating effects upon every single individual in our society. But for the government to bail out brokerage firms is something else. But when the two are merged then the government is being asked to bail out the gambling house, which it should not do.

I mentioned in an earlier Blog why the sub prime lending shenanigans occurred. It resulted from the following series of events: 1) a lending institution gives a loan to a person to buy a house and the lending institution has the collateral for the loan, and 2) the lending institution collects their loans and sells to a bank the profit which is to be made over the term of the loan and the bank does not have the collateral because they are buying only the profit which is to be made in time. The bank paid good money for a piece of paper with no real value – the promissory note of money which is supposed to be made over time. Essentially, the bank paid for nothing.

Essentially, these institution and the so-called “Market” are ignoring The Laws of Energy and Power described as The Laws of Thermodynamics which are as follows:

1. First Law of Thermodynamics:
Energy cannot be created or destroyed. It can only be transformed from one form to another. Another way of stating this is as the Law of Conservation of Energy. The total amount of energy is constant.

2. Second Law of Thermodynamics:
In all energy exchanges, if no energy enters or leaves the system, the potential energy of the state will always be less than that of the initial state. This is commonly referred to as entropy.

I digress. But the point should be made that when thing are being bought and sold and no assets are being conveyed, both the first two Laws of thermodynamics are being broken. If the people running the Space Program were to ignore such Laws, we would never get a rocket off the ground and other tragedies would result.

These type of machinations also occur in the Oil Market and is the reason why drilling for more oil to increase the supply will NEVER lower the price of oil.

The Market must begin to appreciate these Laws before the Chaos of the Market ceases. I am currently preparing a manuscript describing the Laws of Thermodynamics as these relate to Market Investments.

nicola michael ©. Tauraso, M.D.)
Director, Tauraso Medical Clinic
Web site: www.drtauraso.com
Blog site: http://www.drtauraso.com/blog/index.htm
Email: drtauraso@drtauraso.com




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2 Comments:

Anonymous Anonymous said...

I am glad to know that a doctor is an expert on what the banks and brokerage firms should be doing.

March 19, 2008 at 1:32 PM  
Blogger Dr. Tauraso said...

Touchy, Touchy. Why are some people like you need to be so sarcastic? Just because I have an MD degree, i need not be ignorant of other areas of intellectual persuits. The fact of the matter is that what I said is coming true at the present time. It is not good to combine banks who are in the business of preserving capital with brokerage houses who are essentially gambling houses. I am not the first to say this. Several years ago Donald Trump called the market a big gambling house. So don't be so touchy. Relax. perhaps you would do well and read my book on: "How to Benefit from Stress." I am sorry, I just cannot help myself in some of my digs.

Dr. Tauraso

March 19, 2008 at 1:52 PM  

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