Friday, October 9, 2015

Purple policies.............................

Bankers Anonymous offers a book review of The Clash of Generations.  The book offers "four 'purple' policy proposals – 'purple' meaning meant to appeal to both red and blue sides of the American political spectrum."  Fancying myself as a purple sort of fellow, I read the review.  Since my parents taught me at an early age to share, here is my favorite part of the reveiw:

Kotlikoff and Burns advocate a radical simplification of banking functions. Their proposal says that any and all banks (plus insurance companies, brokerages, credit unions, private equity firms) must fund themselves and be regulated as “mutual funds,” taking in actual deposits for every dollar invested in loans. No borrowing, full stop. Any company that prefers to leverage itself (hedge funds might want to) must operate under a “full-liability” regime, meaning losses are guaranteed personally by the business owners and executives. You can see why this is kind of appealing in the wake of the 2008 crisis and bailout of Wall Street.

[Incidentally, my own radical ‘purple plan’ addresses this same post-2008 moral hazard problem, but in a different way. My rule is: Any financial firm over a certain size (I don’t know how many would qualify but let’s say the biggest 25 firms, and any that are considered ‘systemically important’) get regulated like public utilities, with massive restrictions on executive pay. Of course, all financial firms are invited to get smaller through divestiture, sales, breakups, whatever, to get under the size limit and become systemically irrelevant. At that point, executives at the newly smaller firms can go back to paying themselves whatever they want. That’s my solution to the problem of “profits get privately enjoyed via executive compensation but any liabilities get socialized” when a systemically important financial institution gets bailed out.]

1 comment:

  1. No - just no bailouts ever again and transparency to examine a financial institution's assets