Dan’s Blog

Step 1: De-Institutionalize

Dan Calandro - Thursday, May 17, 2012

There is an old saying that criminals serving long term prison sentences can become "institutionalized," meaning they become so  reliant on the jail system to provide their basic necessities of life – food, water and shelter – that they can’t live without it, or outside it. They become institutionalized when the very thought of maintaining sanity and civility outside the institutional borders scares them to hell. When they reach this point, the person has grown so attached to the institution that they prefer a jailhouse bunk over freedom and independence. It’s an ill state of mind.  

That is the state of the financial industry today. 

Banks began losing their identity during deregulation that occurred in the 1990’s. It was then that banks began transforming into "financial institutions" by offering services beyond traditional banking boundaries. It also brought about major industry consolidation in an attempt to offer consumers a "breadth" of services. Consolidation got a further boost during the panic stricken market Crash of 2008 – when bailouts and takeovers were everywhere, and even Goldman Sachs changed their operating structure to a "bank holding company" to qualify for emergency cash funding through the Federal Reserve’s discount window. By the time the dust settled, and after an unprecedented amount of industry consolidation, the financial industry was essentially nationalized through the banking system by the end of 2009. Today the industry is inundated with "too big to fails."    

And then Jamie Dimon rattled the hornet’s nest by losing a few billion dollars. The government is now investigating and there are suggestions of more financial regulations, tighter boundaries – and then there’s the so called Volker Rule (not to be confused with the Dimon Rule of Stupid.) But who’s kidding who? More political rhetoric and grandstanding won’t fix this problem. Dodd-Frank has already proven that in 2,500 pages.  

The only way to end "too big too fail" is to break-up companies that fit that bill. Am I wrong here?

Why not start this process by making banks be banks. Banks don’t sell insurance. Insurance companies do that. Banks provide banking services and asset based lending/financing (i.e. the purchase of a primary residence or capital equipment.) They’re not investment banks. They’re money banks. Investment companies provide investment services and effectuate investment transactions – they’re not insurers or money bankers. They’re investment banks.  

Let’s take JP Morgan Chase for example. At the very least it should be broken into two parts: JP Morgan Investment Company and Chase Manhattan Bank. (How’s that for radical?) Banks cannot place bets in "synthetic portfolios" like Mr. Dimon did. But investment companies can. As such, Jamie Dimon can’t be the CEO of Chase Bank but could be for JP Morgan Investments.  

Banks must be more conservative. They facilitate market activity (spending and making payments) and should be dedicated to instruments of savings and financing long term purchases. As such, banks should focus on calculated credit risks attached to actual and legitimate items of collateral. Anything else is an insurable risk, an investment, or a speculative gamble – none of which have a place inside bank operations.  

Hey, free-markets are just like free-people, both can overindulge at times. The financial industry has done this through deregulation and wide-scale consolidation. By providing all the same services in massive form – banking, insurance, and brokering investment transactions – financial institutions have become too much of the system, and hence, "too big to fail."

This must end.  

The industry needs to change its mindset and de-institutionalize, making itself smaller and less reliant on the system, government intervention and bailouts. This will lead to a freer market – one step at a time.  

ShieldThe road to financial independence.™

*assuming "synthetic" bets are legal investment products 

Recent Posts


Besides receiving periodic updates and alerts, subscribe to our email list and gain direct access to Dan Calandro, award winning author and inventor of the 15-51 system.™ Dan is the ultimate investment coach, and because he provides this service free of charge to his following, you can count on the most honest and unbiased investment advice offered in the industry.

  • Learn
  • Lose Your Broker
  • Knowledge is the foundation of success. Dan’s method is grounded in basic logic and common sense, and is backed by history, fact, and mathematic. It’s easy to understand, simple to use, and consistently produces superior results. Guaranteed.
  • Plan
  • Surviving the Next Crash
  • Having an action plan at the ready is a vital ingredient to transforming the next major correction into the greatest investment opportunity of your life. This captivating new piece is a great addendum to the book. Get it now for FREE!
  • Achieve
  • See the performance you can expect with the 15-51™ system! Dan’s portfolio routinely outperforms the markets by more than 600% over the long-term – and you can do it too! Click on the image to see the proof.
  • Support
  • Dan makes good on his chapter 8 guarantee by personally connecting with his readership to answer questions and coach members through the investment process.