Equity-capital ratios in the range of 20 percent to 30 percent would make banks safer, so you’d expect the return on bank equity to fall. That’s a feature not a bug. Bankers who have been feasting on profits from excessive risk-taking will see their pay fall too. Count that as a further benefit. It might do a little something to slow the 30-year trend toward greater income inequality.
Bankers might call these proposals radical, but in fact they’re moderate. The structure of the banking system wouldn’t change. Banks would still operate two essentially different businesses: selling short-term debt and making loans. The potential for a mismatch would remain. More capital would certainly help, and taxpayers would be less on the hook, but the risk of bank failure wouldn’t disappear. The same goes for making banks smaller, so that more of them could be left to fail on their own. It would help, but it doesn’t address the underlying problem.
There’s a way to do that. Divide the banking business in two. Deposit-takers don’t have to be credit-creators — they can be told to hold entirely safe assets. Credit-creators don’t need to take deposits — they can fund their operations by borrowing in financial markets. As renowned Yale economist James Tobin once said, “The linking of deposit money and commercial banking is an accident of history.” He and other thoughtful scholars have been discussing how to correct this “accident” for many years.
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Why does the taxpayer get stiffed?
That’s not supposed to be the way it works.
You fail; you go bankrupt.
I understand that we don’t want the poorest saving their pennies to be wiped out.
But they are being wiped out by inflation. Even the middle class is being screwed royally.
So why can’t we figure out a compromise?
It’s the illusion of a “free market”. But it’s one where the politicians, lobbyists, and the “rich” can’t lose.
Kill the Federal Reserve. Andrew Jackson was ABSOLUTELY correct.
Restore GOLD as the basis for the monetary unit. (OK, if you don’t like gold, how about a loaf of bread, gallon of milk, barrel of oil? Or a basket of them?)
Economists are fond of mental experiments. Let’s try this one: “If money grew on trees, then it wouldn’t be very valuable.”
What is a dollar anyway?
Dammed if I know.
I know what it used to be.
Then Govenrments like Abe lincoln and FDR and … wanted to spend more than they dare take in in taxes.
I’d deny them the printing press and the debt window.’
Yeah, a road may need to be financed over it life. But our congress critters can’t be trusts.
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