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Money fund issue:
Remove the $100,000 cap on insured bank deposits. This adds no risk to government. And it will eliminate the need for money funds which the cap created in the first place.
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Broker/dealers:
Let them go. If they don’t survive, at worst their assets will be distributed by the bankruptcy court if it goes that far. They do nothing that I know of that serves public purpose and/or the real economy that banks can’t do. And the banks are already regulated and supervised.
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Insurance companies:
Policy holders should be government insured and insurance company assets, and capital regulation should be updated. You will know insurance regulation doesn’t go far enough if there are too many government losses to make policy holders whole.
AIG got short credit (sold insurance on securities at low prices) and lost all their capital as risk and the price of insurance went up. Looks to me like a failure of regulation that allowed that much risk.
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Home ownership:
Continue to fund the agencies via the Treasury to keep costs of funds at a minimum.
Have the agencies ‘buy and hold’ new originations, and thereby eliminate that portion of the secondary markets. The secondary markets serve no public purpose, beyond working past flaws in the institutional structure that should instead be addressed.
Increase and enforce criminal penalties for mortgage application fraud. Its functionally the same as robbing a bank.
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Banks:
Lower the discount rate to the fed funds target rate and eliminate the need for collateral. This is how it should have been anyway.
Bank assets and solvency are already highly regulated, and how they are funded doesn’t alter the risk of loss due to insolvency for the government.
An interbank market serves no public purpose. Eliminate it out to six months by offering discount lending out to 6 months.
In addition to the FOMC setting the fed funds rate target, it can also set the rate for 3 and 6 month borrowing at the discount window. This both gets the job done and also replaces the TAF and TSLF type of experiments.
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Growth and employment:
Offer (directly or indirectly) a Federally funded $8 per hour full time job to anyone willing and able to work that includes health care benefits. An employed buffer stock is a more effective stabilizer and price anchor. It’s also less costly in real terms, than the unemployed buffer stock we currently maintain.
Eliminate the various payroll taxes as needed to sustain demand.
Implement needed infrastructure upgrades and repairs.
Eliminate health care as a marginal cost of production. People aren’t more likely to get ill if they are employed; in fact, the opposite is likely the case.
The current system distorts pricing, and results in a suboptimal outcome for the economy’s ability to sustain prosperity.
If you in general agree with the above, please forward this to all your contacts in high places asap, thanks.
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Warren I like a lot of your points, specifically:
“Broker/dealers:
Let them go. If they don’t survive,”
I agree, but hank paulson is still a GS man, and his brother is still at GS, we have let the fox gaurd the henhouse because the public in general and the representatives of the public don’t want to trouble themselves with watching the watchers, that would get in the way of “deal or no deal” if they aren’t already on the take.
I think we need to arrest some of these boyz, I don’t want to see anyone phyically hurt, but I want them to be deprived of enjoying the fruits of their thievery – it sends a good message to the next crooks that try to pull the same tricks. My smarter political friends say the real problem is that we need more representatives in congress, that 2 senators per state is not enough, it focuses far too much power into far too few hands for the amount of people they represent. It may have been ok 200 years ago when the population levels were much smaller, but it did not adjust as the population levels adjusted.
“Increase and enforce criminal penalties for mortgage application fraud. Its functionally the same as robbing a bank. ”
Absolutely!
“Growth and employment:
Offer (directly or indirectly) a Federally funded $8 per hour full time job to anyone willing and able to work that includes health care benefits.”
Agreed, I personally want to work as a male escort for older women, and many of my ex girlfriends want to work as female escorts. It is silly for all of us to sit around “idle” when we could be giving company to all these sad lonely sexually frustrated people! But the laws currently don’t allow this in most of the USA Warren. It is the oldest “profession” in the world after all.
“An employed buffer stock is a more effective stabilizer and price anchor. It’s also less costly in real terms, than the unemployed buffer stock we currently maintain.”
It is terrible for me to sit on the beach all day at the dock of the bay wasting time, I need to be DOING something, escorting as a paid gubbment job would be better than just sitting idle in the garden of eden doing nothing right?
Ok W so your oil plan is the same as before. More drilling and pluggable hybrids?
My oil plan is to reduce our net consumption of what’s under monopoly control to break that monopoly, and/or stop using it ourselves.
Those two things are related but not exactly the same.
We need a net decrease in demand for crude internationally of maybe 10 million bpd to break the monopoly and get the price down.
We need to keep that demand for crude down to permanently remove the ability of any one producer to be ‘price setter.’
While drilling increases supply, and US drilling could eventually increase US output by maybe 2 million barrels per day, that falls far short of breaking the foreign crude monopoly.
Additionally, if we move to increase agg. demand to reduce unemployment, without an energy plan crude consumption will increase. That gets us nowhere.
And, last but not least, we have to come to terms with how much total energy we want produced via combustion, which we haven’t addressed. (Total combustion is growing rapidly world wide.)
My plan to cut gasoline consumption immediately is to drop the national speed limit to 30 mph for private transportation, etc.
Yes, if we do nothing pluggable hybrids are likely to sufficiently cut gasoline demand to break the monopoly as demand shifts from gasoline to whatever is powering the grid.
But that could take up to 10 years, and it doesn’t even begin to address the issue of total world combustion.
To reorganize:
To keep the US from losing it’s real wealth via deteriorating real terms of trade we either need to pay a lot less for imported crude and/or stop using it.
Drilling successfully will cut down our need for imported crude and help our real terms of trade, but not by more than 20% at most (we import over 10 million bpd of crude), and only if our consumption doesn’t increase. It’s also far short of being enough to break the foreign monopoly and get prices down. And, if anything, it may increase total world combustion.
Pluggable hybrids will cut our demand maybe by most of that 10 million bpd, but will take a long time, and will shift that demand to whatever is powering the grid and will probably not decrease total combustion.
Cutting the speed limit will immediately cut our gasoline consumption, and immediately help our real terms of trade. It also cuts total combustion and provides powerful incentives for time saving public transportation that should further cut combustion.
It might also break the foreign monopoly in crude but since we wouldn’t be importing much that wouldn’t be all that important for our economy.
And pluggable hybrids should still take over to further reduce gasoline consumption.
“Increase and enforce criminal penalties for mortgage application fraud. Its functionally the same as robbing a bank. ”
A bit lop sided? This post exposes a bias.
Okay to rob the government if you are a bank, but not okay to rob a bank if you are a citizen?
Rob the government and you got christmas bonuses and bailouts, ‘mortgage application fraud’, you end up homeless.
The banks were regulated but so were citizens. Why should one be criminally charged and not the other?
Also were these listed in order of preference or importance?
Eliminate the broker/dealers…..well it happened! WOW Dick Fuld would have loved to have the choice to get THAT window!!!
wins- yes, prosecute anyone who illegally obtains funds from govt.
legal activity can’t be prosecuted, but it can be made illegal if so deemed.
no the list is not in order of importance.
H- there is no such thing operationally as the fed ‘overissuing currency’ so that article is moot.
At some point I’d like to know if you take the position that monetary policy should be weakened or eliminated.
Fiscal policy is strong because we don’t funnel the policy actions through a quasi-private interface. Imagine if all government spending decisions were made by a loosely regulated equivalent to the financial sector.
The JG or ELR would make fiscal policy more effective as it directly connects fiscal policy with citizens. Why not come up with an equivalent way of making monetary policy more effective?
“Imagine if all government spending decisions were made by a loosely regulated equivalent to the financial sector. ”
I should have noted that Paulson’s plan is a large step in that direction.
Where
Fiscal policy is government directed spending
Monetary policy is government directed lending
by definition monetary policy is a very weak force at best.
i’d set rates permanently at a japan like 0 and let the fed concentrate on regulation and supervision.
see ‘0 is the natural rate of interest’ under ‘mandatory readings’
🙂