Once the market stabilizes, something needs to be done to isolate systemic risk in some of these very large banks. Right now, all of the largest institutions have experienced huge market share gains in mortgage and other segments while at the same time have huge risk taking operations.
Not to pick on poor Goldman (NYSE:GS), who gets enough heat these days, but the taxpayer shouldn't be guaranteeing one half of the balance sheet while the other half goes hunting in the hen house. This applies to Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS) (which is, as we speak, rapidly increasing its balance sheet risk) and virtually every other large institution. Just to be fair, Goldman took a lot of these risks at the behest of the Fed, which wanted to encourage risk taking again to stabilize the market. At some point, once the seas are quiet the table needs to be re set.
At we get more visibility into a situation where these institutions have income that outstrips loan losses, we need to look at ways to dismantle the behemoths we have created and firewall these balance sheets from proprietary trading and risk taking.
I don't want the Administration to go on some sort of pro cyclical binge regulating the banks into zero profits. Rather, the balance sheets that by nature of size or scope require underwriting by the US taxpayer need to be "firewalled" from those that undertake speculative risks.
Guys like Jamie Dimon over at JP Morgan (NYSE:JPM) should be a big part of how we figure out how to do this. Of all the CEOs, this guy has the best regulatory head and makes the most sense--he'd make a great replacement for Geithner, who is not a strong Treasury Secretary. The battle plan, I believe, is to reform our regulatory system first then fix the banks. However, I don't think Geithner is strong enough to do this. Jamie Dimon is though and, if asked, he'll serve.
With bank profits finally stabilizing, this process may be coming sooner rather than later.
Just to appease the disclosure gods, I am long the common, preferred and debt of BofA, Citibank (NYSE:C), and JP Morgan.