The End of Banking as We Know It

Say hello to Theo Bawki.

Theo Bawki is not a friend from South Africa. Rather, it's Sudden Debt shorthand for The End Of Banking As We Know It. And if the Volcker Rule passes Congress without a bunch of customized loopholes and exceptions, that's exactly what is going to happen. Thankfully.

As preamble, let me take you back 12-13 years. I was visiting the London HQ of Merrill to see a bond trader on behalf of my firm. During our discussion, I noticed he kept referring to Merrill as a "bank" and, since I was an ex-member of The Thundering Herd myself, I was curious why. After all, we who had graduated from its rigorous training program never thought of Mother Merrill as anything much more than a big brokerage firm, i.e. a very powerful marketing and sales organization for investment "products". We most definitely did not think of ourselves as "bankers" - this was a title reserved for the boring folks who worked at Citi, BofA, etc.

But when I innocently asked him if he meant "brokerage firm", he got offended. He had placed Merrill (and himself) amongst those who raise funds and invest on behalf of their institutions as principals, instead of being an honest Mr. In-Between. Apparently, in his mind this carried far less cachet than being a "banker". The re-transformation of our financial system had started and the walls of Glass-Steagall were coming down far faster than I imagined.

We all know what happened in the years that followed. Our financial system became a mishmash of "players" who could and did switch hats at will in order to obtain maximum profit and minimum regulation. Bank, broker, investor, speculator, private equity and hedge fund, loan originator, packager, servicer, dealer, trader .. all melded into an amorphous mass where Anything Goes. And, of course, everything went: pop and south.