Jeff

Why would we want FDIC insurance if we split the banks as you propose in point 4? The bank that just stores my money would not need insurance, would it? And if the other bank is FDIC insured then why would I want to keep my money in the first bank?

1) We cannot forget the role that market distorting politics played in all this, especially with regard to the existence of Fannie/Freddie and their reason for being (buy subprime loans, loans banks otherwise would not make) and tax law (remember, you now get to keep 100% of hour home gains up to a point, gas on the fire?, heck yeah!). So we should phase out Fannie/Freddie, and at least define home gains as capital gains.

2) Too big to fail is the wrong idea, too big to succeed is more accurate: current financial services firms simply do too much, and much of it with conflicts of interest. Is the right regulatory framework really one that lets a single firm do banking, investment banking, mortgages, currency trading, research, brokering an god knows what else? I think not. Bring back Glass/Steagall. Oh, and forbid investment banks from going public.

3) Derivatives are a problem for one reason: they make it difficult to determine underlying value. I would propose we limit the number of times one investment can derived from another, say to three. Arbitrary, yes, but simple.

4) Should we take a harder look at fractional reserve banking? I think we should. One idea would be to create two kinds of banks, both FDIC insured: bank one would be a service for making your money accessible and it would charge for this service, just as today’s banks charge folks at the ATM and with other fees, but it would NOT invest money; bank two would be what we have today.

5) The S&L model should be brought back, and S&L’s should be limited in that they can only operate in one state. Such a structure would reconnect the bank making the loan to the person buying it, and to environment where the loan would be used, this reducing pure speculation.

6) Nuke the Fed. I agree with Ron Paul! Besides, talk about too big to fail!

I could go on, but I think those would be my main points.

Jeff Shattuck
http://www.cerebellumblues.com

There you have it. No time left for anymore regulatory reform “trial balloons” which haven’t apparently worked so far. Besides, they have an army of attorneys who will work around the clock and uncover the loopholes in any legislation that you pass. Let them fail or nationalize them. But do not reward them at the expense of the taxpayer, for taking risks that they had no business in taking in the first place or from running their companies into the ground. That’s how you put an end to moral hazard. Everyone grows up and becomes responsible.

If one company is so large that it’s failure poses a systematic risk for a local economy, much less a national (global) economy, why is it not broken into pieces that could each fail individually, without such a risk? I just can’t understand why this type of action was taken, in the way that Ma Bell was broken, and the way GM was threatened in the late 1960′s (or so I’ve read).

It just seems so obvious, to a simply mind like myself. People always told me I was “simple”, and I took it as a complement!