In a previous post, I explained that banks are inherently fragile. One way to make them more robust is to increase equity capital requirements. This is the remedy advocated by Bloomberg View's editors. The banks call it radical but it's really pretty moderate, because it leaves the basic structure of banking alone. The same is true of calls to make the banks smaller. Smaller banks are still banks.
A genuinely radical approach would be to kill banking as we know it. Rip all banks, large or small, in two -- separate deposit-taking from credit-creation. Back the deposits one-for-one with reserves at the central bank. Then fund loans not with deposits or other money-like liabilities but by tapping investors who understand they've put their savings at risk.
This is getting fairly little coverage.
Is the New York Times no longer considered a Major News Provider?
posted by oneswellfoop at 6:36 PM on April 20
I see "Jaguar" and "Porsche". I will raise you with Ferrari.
You know that handful of weird generic funds that are your only choice for your 401K? They'll hide them in those.
Yep. My 401K guy once drew me a map of the chain of fees and middlemen between me, him, and my money. It looked like something out of the Gambino trials.
Citigroup, Credit Suisse and UBS have recently completed such trades. Rather than selling the assets, potentially at a loss, the banks transfer a slice of the risk associated with the assets, usually loans. The buyers are typically hedge funds, whose investors are often pensions that manage the life savings of schoolteachers and city workers. The buyers agree to cover a percentage of losses on these assets for a fee, sometimes 15 percent a year or more.
The loans then look less worrisome — at least to the bank and its regulator. As a result, the bank does not need to hold as much capital, potentially improving profitability.
lupus_yonderboy: > Sure, but this statement is inherently misleading. I don't care AT ALL how many people make money off of my investments. I only care how much of the returns from those investments I get to keep.
But you also care about accountability, do you not? If a bunch of your investment just vanishes, or even just dramatically underperforms for a long period, you want to be able to find out what happened, don't you?
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