The U.S. Banking system is in serious trouble. Most of the solutions proposed so far have been a patchwork. Fold the weakest banks into slightly stronger banks. (e.g investment bank Merrill Lynch into commercial bank Bank of America). This createst monstrosities that are barely stronger than the component parts. The endgame is that the U.S. government will eventually have to step into stabilize the banking system.
There is a better solution: sell off banks to private investors. Some of them have been successful in other businesses, and want a chance to run a bank. And despite my quibble with him this morning, there are few better than Warren Buffet of Berkshire ... who is one of the wannabees.
Banks have historically drawn their talent pool from a relatively small segment of the population. Typically, the smartest graduates of business school finance programs are hired by the investment banks. The graduates perceived as "second-raters" are hired by commercial banks. Few of them get their hands "dirty" in manufacturing, or things of that sort.
The first group of people are shoved into a "coccoon," and then into "orbit." As a result, they have a tendency to overreach. The second group of people are at least a bit more down to earth. But not being as smart as the first group, they don't always fully understand how the world works. What is needed are people with first rate minds and who are also down to earth. People like Warren Buffett.
The test came is spades, when Warren Buffett was asked to rescue Salomon Brothers from its own greed in 1991. Buffett cleaned up the mess by doing mea culpas on the behalf of Salomon Brothers, and making sure that no more improper behavior occurred during his watch. That much was true, although it did not necessarily hold AFTER he sold the company.
This time he wants to play for keeps. With Wells Fargo. A bank whose stock he has held for nearly twenty years, and admired for even longer. In his 2008 annual report, he wrote of utilities that his corporate behavior today would determine whether or not regulators would allow him to take over more tomorrow. He must certainly feel that way about banks.
Warren Buffett isn't the only qualified private investor around. There are a number who have been successful in non-banking endeavors who also deserve a chance at a bank. They are too numerous to identify by name but they exist. Let them fix our banking problem. And have the chance to eat their own cooking.