When J.P. Morgan (NYSE:JPM) revealed in its research not recently that it could cost up to $221 billion for banks to comply with the regulations being offered as solutions to the industry, it removed the veil off of the usual unintended consequences always associated with government interference in the markets.
British banks alone would account for about $91 billion of those costs if the regulations being put forth are enacted as law.
While this would have an effect on all the banks, the more drastic effects would be on those banks with larger investment and insurance units, although retail banking wouldn’t escape either.
The elimination of bankers bonuses in the scenario we’re talking about would drop costs for return on equity from 33 percent to 26 percent, not that big of a deal.
As far as before tax profits, they would fall off the cliff by $110 billion. Net income would decline by $74 billion in 2011, according to the note.
What would be the unintended consequences? The cost of doing business for businesses and regular customers would rise significantly just to bring return on equity back to what it is today. And that doesn’t include if the banks want to increase their return on equity.
Net income would experience similar circumstances, making this a very high cost and unproven consequence for consumers and businesses to bear. Trace it down to all levels though, and the cost of living will soar, as ultimately businesses will pass on the costs to their customers too in order to maintain a good return on equity.
All of this is happening because governments in their attempt to play god, are trying to make it impossible for people to have to suffer economically.
That’s the typical response of socialists, who are outraged by the possibility that they can’t control all aspects of life, even after decades of proving they can’t.
In the end, ordinary people will bear the brunt of whatever government interference we end up having to deal with, and it won’t provide any more safety than there was before, as history has proven there will always be risks in life, and trying to cover every perceived hole in the boat will only hurt ordinary people in the end, and not help them, as the burden will be born daily by them by the growing cost of living, rather than having to deal with difficult economic circumstances occasionally.
By the way, when talking about unintended consequences here, I’m not talking on the part of governments around the world. They know full well it will hurt everyone, especially the little people. It’s the ordinary person that doesn’t understand what’s happening who will be shocked when they find their lot in life even worse than before all the regulations enacted to ‘save’ them.
