Why George Soros Hates Lloyd Blankfein

While the Congress and the White House debate the best way to wean the U.S. financial industry from the government teat, George Soros is actively promoting the wholesale castration of the banking industry. Not that many bankers aren't deserving of such treatment. It's just ironic that George Soros would be urging such regulation of the financial markets. In a recent interview with the Financial Times, George Soros went so far as to urge a government cap on executive compensation at financial institutions receiving government aid, so that the risk-takers who are earning the greatest bonuses will be inclined to jump ship and go to work for the hedge funds, such as Soros Fund Management, where George Soros believes their abilities are better suited.

Clearly, I can understand Soros' jealously and frustration. In previous posts I have expressed deep dismay at actions by the Treasury and the Fed, as well as Congress' absurd TARP legislation. Financial institutions who have access to the Fed Window can borrow almost unlimited sums for free, and use them to purchase government bonds at 3%, which is literally giving banks a license to print profits. Hedge funds, like Soros Fund Management, have to raise money the old-fashioned way, by seeking out investors, and must pay over-market returns in a volatile and risky environment. The resentment in the hedge fund world must be tangible.

However, is increased regulation of the banking industry, including unprecedented moves such as regulating executive compensation, the correct response? Absolutely not. Any institution that provides a service that is so central to the function of the Republic that they have been designated as "too big to fail" should be nationalized and the service should be provided by a government agency. If the government is not willing to nationalize the biggest banks, then they should remove support and permit them to sink or swim on their own.

Existing regulations, such as minimum capital requirements and leverage limits on FDIC insured deposits, should be enforced and the legal authority of the FDIC to seize troubled institutions should be bolstered, but the government should not socialize the banking industry through excessive regulation. Doing so would guarantee that credit remains available only to those who least need it, and that innovation and risk-taking are squelched.

As much as we hate watching Lloyd Blankfein and his ilk suck the government dry, it is the government itself that got into this position, and it is the goverment itself that must get out, but not at the expense of free market capitalism and the American Way.