By: Elliot Turner
First it was Lehman, then JP Morgan (JPM) and now we hear that so too was Bank of America (BAC) abusing the infamous “Repo 105” to the tune of $49 billion way back in 2006, hat tip to Felix Salmon for the news. On Friday, I compared the Repo 105 plot line with steroids in baseball and the more I thought about the analogy over the weekend, the more I realized it was right on. I wanted to draw this whole thing out one step farther: With Bank of America joining the club, we now know that many of the key players in this game of finance abused performance enhancers.
The discoveries, admissions and apologies all follow the typical narrative we witnessed throughout baseball over the last five or so years (I was thinking, maybe this is because baseball players and banks alike all use the same PR people?). More apparent now is that we had a commissioner (regulators generally speaking) who turned a blind eye to the problems because their players were hitting home runs by the dozen with one earnings beat after another, thus making the success of the institutions synonymous with the success of the system. Next, we have the fans (the shareholders) who cheered the earnings every step of the way while surrendering more and more power to the players themselves, while idolizing and worshiping the actors (think Greenspan=maestro) without ever considering the longer-term consequences.
Baseball and finance share an obsession with numbers and history. Much like steroids did with baseball, ultimately what hurts in the end are the “integrity of the game,” the health of the actors (baseball players dropped dead on the field from “enhancements” and banks from holes in balance sheets), and the impact beyond the scope of the playing field in bringing negative externalities to society at large (remember in baseball the talk over the health of our youth). At this point we must ask: why is it that Congress has no problem using the anti-trust laws as a means to attack and control the steroid debate in baseball yet fears further involvement with finance?
Congress approached baseball in an antagonistic manner demanding immediate action. With finance, Congress holds the industry’s hands, while singing koombaya, looking for campaign contributions and all-the-while saying “let’s make a deal.” Hopefully with the health care debate in the rearview mirror, we can have a more focused and committed Congress to reshaping our financial sector in such a way that it is self-sufficient and does not need government bailouts in order to stay solvent. Unfortunately, where this analogy ends is in the stakes. They are much higher with regard to finance than baseball and the consequence more far-reaching.
