A trillion here and a trillion there
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AndyKEnZ wrote:
Nah, every attempt to regulate the banks in the past has failed. This time the solution has to be more drastic.
I agree - I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums that increase with increased leverage and increased risk. Furthermore, if the bank defaults the insurance payout goes to a regulatory body who can use the money to repair any economic damage caused by the bank failure. No nationalisation required and the bank has incentive to keep its risk-taking under control. This could also be accompanied by legislation on executive incomes that tie them to concrete performance standards and rules that forbid compensation to be tied to level of profit.
73Zeppelin wrote:
I agree - I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums
That's a nice sounding theory, but the banks won't end up paying this new risk-insurance premium. I say let them fall, nationalise banking and later on if free-enterprise banking can do it better and cheaper then they can re-enter the game.
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73Zeppelin wrote:
I agree - I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums
That's a nice sounding theory, but the banks won't end up paying this new risk-insurance premium. I say let them fall, nationalise banking and later on if free-enterprise banking can do it better and cheaper then they can re-enter the game.
AndyKEnZ wrote:
That's a nice sounding theory, but the banks won't end up paying this new risk-insurance premium
I know, it has to be legislated. Of course it wouldn't be voluntary. It should form a new set of banking accords. Since Basel II has already failed, it should be one of the foundations of Basel III. Free enterprise can always do it cheaper.
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AndyKEnZ wrote:
That's a nice sounding theory, but the banks won't end up paying this new risk-insurance premium
I know, it has to be legislated. Of course it wouldn't be voluntary. It should form a new set of banking accords. Since Basel II has already failed, it should be one of the foundations of Basel III. Free enterprise can always do it cheaper.
73Zeppelin wrote:
I know, it has to be legislated.
And therein lies the rub. What has been legislated can be unlegislated. The banks bought their lack of oversite - at least in the US - with large gifts to the members of the banking committees of both houses of congress. All it took was for the Great Depression generation to start dying out and all of the lessons learned from it were forgotten.
Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.
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73Zeppelin wrote:
I know, it has to be legislated.
And therein lies the rub. What has been legislated can be unlegislated. The banks bought their lack of oversite - at least in the US - with large gifts to the members of the banking committees of both houses of congress. All it took was for the Great Depression generation to start dying out and all of the lessons learned from it were forgotten.
Jon Smith & Wesson: The original point and click interface Algoraphobia: An exaggerated fear of the outside world rooted in the belief that one might spontaneously combust due to global warming.
That's true, but if you set up a robust apparatus, it makes it difficult to be unlegislated. I don't know of any other effective controls. At least there's the possibility that, in the long-term, if it is up for delegislation somebody can always argue: "we did that before and it lead to disaster". I don't know how else we can go forward. Obama's talk of "bad banks" scares me. The Japanese did that and just dug a deeper hole. In this case, the problem with nationalisation is trying to compensate these banks with a "fair price". The U.S. government is already in deep debt (so much so that it is getting worrisome). Obama's talk of "spend, spend, spend" is not reassuring, either. Who's going to buy up U.S. government debt when the interest rates are really low? I don't want to know what happens if the AAA rating gets cut to AA....
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I, too, think that the banks should be nationalized (like Sweden did). Creation of "bad banks" similar to Japan's efforts will fail. I am sure. However, nationalization should only be for the short-term. Afterwards, they would be returned to the private sector. However, I cannot agree with you on a version of Bretton-Woods II. To make Bretton-Woods effective, you have to choose a standard to peg to. Economies, therefore, become tied to each other. This is one of the current ills of the Euro system. It leads to the Triffin dilemma[^]. Bretton Woods was a horrible idea. The way forward is through better regulation. One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance" (for example to a regulatory body). The insurance policy would be such that, if a bank does fail, then the insurace payout goes to the government, rather than the bank. Premiums would rise with increased leverage and decreased liquidity and decrease for a bank that is more secure. The insurance policy idea also gets around the "too big to fail, to small to save" problem.
73Zeppelin wrote:
Afterwards, they would be returned to the private sector.
Agreed, after they have paid the taxpayers for the money they lent.
73Zeppelin wrote:
Bretton Woods was a horrible idea
I don't say Bretton Woods was the best way to organize monetary systems especially because it was based on the good will of one. Nonetheless the 'no organization at all' led to a gigantic gamble on moneys and led to the creation of many derivatives to cover and counter-cover and over-cover the risks which are now exploding in our faces. If we are able to stabilize relationships between moneys, a lot of stability will be injected into the system and a lot of 'virtual covers' would be unnecessary. The problem of the reference is of course a major obstacle, I guess many would not accept the Euro, which is IMO a 'better' currency because its emission is not controlled by political motivations.
73Zeppelin wrote:
One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance"
Knowing that banks can lend 50 times the money they haven I guess the insurance policy would be high.
The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread Fold with us! ¤ flickr
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73Zeppelin wrote:
Afterwards, they would be returned to the private sector.
Agreed, after they have paid the taxpayers for the money they lent.
73Zeppelin wrote:
Bretton Woods was a horrible idea
I don't say Bretton Woods was the best way to organize monetary systems especially because it was based on the good will of one. Nonetheless the 'no organization at all' led to a gigantic gamble on moneys and led to the creation of many derivatives to cover and counter-cover and over-cover the risks which are now exploding in our faces. If we are able to stabilize relationships between moneys, a lot of stability will be injected into the system and a lot of 'virtual covers' would be unnecessary. The problem of the reference is of course a major obstacle, I guess many would not accept the Euro, which is IMO a 'better' currency because its emission is not controlled by political motivations.
73Zeppelin wrote:
One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance"
Knowing that banks can lend 50 times the money they haven I guess the insurance policy would be high.
The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread Fold with us! ¤ flickr
Ka?l wrote:
Nonetheless the 'no organization at all' led to a gigantic gamble on moneys and led to the creation of many derivatives to cover and counter-cover and over-cover the risks which are now exploding in our faces.
Derivatives aren't the problem. For every party to a derivative, there is a counterparty that gets paid out to. So if Goldman-Sachs enters into a derivative contract with BoA, then if Goldman bets wrong, BoA gets compensated. The press only reports the downside losses, not the gains. There is nothing wrong with derivative contracts, what is wrong is improper regulation of derivative contracts in the sense that financial regulation was not able to keep up with financial innovation. But again, that's a regulatory issue.
Ka?l wrote:
, I guess many would not accept the Euro, which is IMO a 'better' currency because its emission is not controlled by political motivations.
It's better at the moment, just like the USD was better after WWII. That's what makes Bretton-Woods style policy a bad idea.
Ka?l wrote:
Knowing that banks can lend 50 times the money they haven I guess the insurance policy would be high.
Depends - if capitalization requirements are set, then a sufficiently capitalized bank wouldn't have to pay a high premium. That would act as a deterrent to risky behaviour. The higher the risk, the higher the premium would be.
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73Zeppelin wrote:
Afterwards, they would be returned to the private sector.
Agreed, after they have paid the taxpayers for the money they lent.
73Zeppelin wrote:
Bretton Woods was a horrible idea
I don't say Bretton Woods was the best way to organize monetary systems especially because it was based on the good will of one. Nonetheless the 'no organization at all' led to a gigantic gamble on moneys and led to the creation of many derivatives to cover and counter-cover and over-cover the risks which are now exploding in our faces. If we are able to stabilize relationships between moneys, a lot of stability will be injected into the system and a lot of 'virtual covers' would be unnecessary. The problem of the reference is of course a major obstacle, I guess many would not accept the Euro, which is IMO a 'better' currency because its emission is not controlled by political motivations.
73Zeppelin wrote:
One of the better ideas I have come across is to have government legislation that requires banks to pay for "failure insurance"
Knowing that banks can lend 50 times the money they haven I guess the insurance policy would be high.
The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread Fold with us! ¤ flickr
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AndyKEnZ wrote:
Nah, every attempt to regulate the banks in the past has failed. This time the solution has to be more drastic.
I agree - I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums that increase with increased leverage and increased risk. Furthermore, if the bank defaults the insurance payout goes to a regulatory body who can use the money to repair any economic damage caused by the bank failure. No nationalisation required and the bank has incentive to keep its risk-taking under control. This could also be accompanied by legislation on executive incomes that tie them to concrete performance standards and rules that forbid compensation to be tied to level of profit.
73Zeppelin wrote:
I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums that increase with increased leverage and increased risk.
How about anyone or any business that takes out a loan is fully responsible for paying it back no matter what.
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73Zeppelin wrote:
I propose the insurance premium plan whereby banks are required to pay risk-insurance premiums that increase with increased leverage and increased risk.
How about anyone or any business that takes out a loan is fully responsible for paying it back no matter what.
Go back to sleep, welfare boy. You're out of your league.
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Go back to sleep, welfare boy. You're out of your league.
I don't need your stupid fake loans.
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It is good to keep your mouth shut and let the world think you are a fool, rather than open it and prove them right.