The definition of insanity

We're being set up for another Great Recession, and this one may just be a Georgia-only affair. On Feb. 15, Governor Sonny Perdue signed the first law of this Assembly session. It further deregulates banks in Georgia, allowing state-chartered institutions to exceed the old limit of lending no more than 15 percent of their capital to any single borrower.

As the Atlanta Journal-Constitution reported on Dec. 8 of last year, one in six bank closings nationwide in 2009 happened in Georgia. And so far, neither of the two houses' banking committees has looked into the issue of lax regulation of state-chartered banks.

The reason behind this is plain and troubling. Many prominent members of both the House and Senate sit as directors of state-chartered banks. Eight members of the House Banking committee are directors of state-chartered banks. In the Senate, the vice chairman of the banking committee, its secretary and at least one other member all sit as directors of state-chartered banks.

Rep. Earl Ehrhart was the director of Georgian Bank, which failed last September and cost the FDIC an estimated $892 million. He's the Rules Committee chairman and a member of the Banking Committee.

Sen. Jack Murphy's institution, the ironically named Integrity Bank, collapsed over a year ago, costing taxpayers upwards of $350 million.

Our banking crisis was born out of banks taking massive amounts of leverage out on big-ticket entities, like the insanity of packaged-and-repackaged bundled subprime loans. Letting banks have the ability to tie a major and seemingly ever-increasing portion of their capital into one or only a few borrowers leaves banks capable of practicing the same risky behavior that nearly destroyed the world economy.

If 15 percent of the 140 bank failures in 2009 were in Georgia alone, shouldn't the state be a little bit more concerned with fixing the obviously broken state regulation? Remember, as it stands, thanks to Democratic indifference and Republican intransigence in Washington, no substantive bank regulation has been passed, so banks can still choose who gets to regulate them. Like any smart consumer, they shop around for the best deal, which in their case means as little oversight as possible.

So in response to a lack of federal legislation, the state decided to run in the direction of the bitterly failed deregulation of the late '90s and early 2000s and straight off the cliff of sanity. These state representatives and senators have a clear and obvious connection to the very things they are supposed to pass legislation about. Under normal circumstances that is shady and ill-advised; given the context of the worst credit crisis and recession in 80 years it is morally repugnant — and should be criminal.

These people are setting up the state economy to fall victim to the same problem we just escaped by the skin of our collective teeth – and by the emptying of our wallets. Furthermore, given the downward spiral of regulation at the Georgia level, more and more banks will likely choose to get their charter here, exposing even more institutions to horrible risk.

Aside from the systematic breakdown in regulation, as the popular saying goes: The definition of insanity is doing the same thing again and again and expecting a different result.

If the rules don't change, and soon, we could see another crippling set of massive bank failures that would devastate not just Georgia, but the country as well.