krebscycle

Wall Street is right, the system of bank regulation we have is ineffective, obsolete, a competitive disadvantage for US banks and an unethical subsidy of the richest by the general public. Oh they don’t say that last part, but it’s the most important part. Why does Bank of America have a trillion dollars of deposits, mostly interest free? To a large extent it has that money because the FDIC insurance and access to the Federal Reserve for short term loans make it super safe. The good old US public is on the hook and has been since the 1930s and so all this delicious money comes pouring into the bank.  Of course, we have deposit insurance and the FRB because we found out that without them deposit banks kept collapsing and taking people’s savings and company checking accounts with them, tearing huge holes in the economy.  But as the bankers keep pointing out, it’s not the 1930s anymore. We have all these computers and networks and databases and things so that, um, well the Federal Reserve Bank could offer government guaranteed savings accounts to every citizen and government checking accounts to every business without much effort. Then we could free the banks from all that regulation and let them compete in the free market – because our savings would be safe.

And it could be totally optional. You want to put your company checking account in  Bank of America because you think they do a better job than the boring government bureaucrats? Go ahead! You don’t want your savings account in the government bank, you prefer the higher interest rates at Goldman-Sachs Credit Default Swap Fund? Have at it! Nobody here will begrudge you your success. But none of us are interested in bailing you out if things go wrong. And bankers won’t have to mess around filing forms with bureaucrats anymore. Financially innovate to your little heart’s content, fellas.