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Small Business Think Tank [This Network is not currently active and cannot accept new posts] | | Topics
Reforming the banking system?Views: 150
Sep 21, 2009 2:52 pm Reforming the banking system?
abbeboulah By all the bursting bubbles on Wall Street -- here I leave town for a few weeks (out of internet range) and methinks the Think Tank all but tanked.

Meanwhile, discussion continues in the Fog Island Tavern: here is a summary from recent exchange on 'Abbé Boulah's Weblog' -- on the banking regulation issue:

While the debate about the bank bailouts with taxpayer money continues, fueled by the banks' blatant resumption of the very practices, including excessive 'obscene' bonuses for executives, that contributed to the disaster, more voices are beginning to wonder how seriously the Obama administration is beholden to the financial system ('Wall Street') as indicated by its reluctance to put the needed reforms in place. See for example Paul Krugman's NYT 9/21 column 'Reform or Bust'. If these suspicions are even just partially on target, it would seem that one should look for a different strategy than just pushing for 'regulations' -- that will surely be so tainted by compromoise as to be rather painless to the institutions in question and their expectations of profiting from the public coming and going. How about encouraging the foundation of banks or credit unions that explicitly commit themselves to guidelines designed to avoid the recurrence of the bubble-bursting calamities. Such commitments might include a system of 'ante' payments or accounts put up by top decision-makers which not only specify the extent of bonuses they can earn for successful performance, but also what they will forfeit if their actions prove to be damaging to depositors, investors, and the public. I also suggest for discussion a rule of 'diminishing marginal profit' as deposits increase -- the widening gap between the income and wealth levels being arguably caused by the systemic feature of awarding higher profit and interest rates the higher the amounts (which rightly offend those naive souls who still believe that earnings should be based on 'hard work' and innovation initiative and intelligent decisions). If the public really wants such reforms, they should be willing to switch their economic activities -- deposits and loans -- to these institutions. This might in the long run nudge the entire financial system into voluntary adoption of more wholesome practices than draconic regulations imposed from above against the resistance of the industry which already inflames the public with its rhetoric against 'government interference into private business'.

Private Reply to abbeboulah (new win)

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