Archive for the ‘deposit insurance’ Category

Part 3: Dialogue on Moral Hazard, fixing the financial sector and certainty of knowledge

September 25th, 2013 No comments
Cross-posted from the “we build our society” Facebook group:
Terry, yes the entire financial sector is rotten/corrupt and rife with moral hazard. And things are now WORSE, as the banks are now TWICE as large as they were previously, and banking reform has served to squeeze smaller banks out of business…. Most of the approaches you suggest would be worthwhile (as would heads on pikes), but none of them actually address the roots of the moral hazard–
(1) the centralizing/federalizing Deposit Insurance by which Govt pretends to “protect” us, but instead builds a regulatory house of cards that puts the robbers in charge of the larger banks, and ultimately leads to taxpayers holding the bag when the bank fails or the “unexpected” but entirely natural/predictable “crisis” occurs and forces “responsible” pols/bureaucrats in DC to bail out the firms whose employees/managers/execs have done all the looting,
 (2) the federal effort (on behalf of favored elites) to take control of the money supply,
(3) the state/federal replacement of paper money as redeemable warehouse receipts for physical currency with just IOUs (and now backed by nothing), as long as the bank maintains “reserves” of cash or “secure assets” like federal bonds (so that the govt can loot the banks to fund pet “public infrastructure” projects; and
(4) the state creation of banks as limited liability local monopolies in the first place (in exchange for money to the state treasury/pols hands), and the then subsequent protection of bankers (by banking “holidays” etc) when they found it convenient to rob their customers by issuing more IOUs than could be redeemed in physical currency. Limited liability has always been the core intervention.
 The Big Boys now have entirely too much power to effectively regulate on a large scale, but we MIGHT be able to pare back deposit insurance, which would restore to some savers (rather than taxpayers) responsibility for figuring out where to put their money (and would create a REAL market for bank analysis). What we also need is to offer much lighter regulation to new banks that are exempt from any federal or state deposit scheme–and let depositors and shareholders manage their own risks, as they are now doing in private companies that are avoiding the public securities markets.