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**mesZibeds** · 03-17-2008, 08:38 PM

Originally posted by Oerdin

Since you can't nationalize or send people to jail the only remaining option would be regulations to discourage the speculative behavior which caused the problems. The problem is that the speculative behavior is not entirely bad, as it fuels positive economic growth (particularly in an economy that has little left to grow in except speculation ... it's not like we produce much anymore); and it's very hard to determine where to draw the regulatory lines. And again, this is not the free-market way (nor is bailouts, of course); it would be much better to find a free-market solution to this free-market problem.

In some ways, I think the best solution could very well be to have a separation between Speculative Banks and NonSpeculative Banks. Re-work the Federal Reserve legislation to the following:

1. The Federal Reserve will only support banks who agree to follow regulations blah blah blah no speculation blah blah higher reserve levels blah blah etc.
2. Banks not following these regulations are still permitted to exist, and may do whatever they want speculation-wise; but they will not be bailed out and their reserves are not FDIC-insured. They may continue to borrow money from non-Fed sources, but may not borrow money from the Fed.
3. No bank that is Fed-supported may own, or be owned by, or be jointly owned with a non-Fed supported bank, directly. Indirect ownership is only allowed in the normal ways where one bank's fall would have no effect on the other banks.

I think you could end up with a situation, similar to mutual funds, where you have 'safe' banks that offer lower returns but are quite safe, and 'speculative' banks that offer higher returns and are somewhat risky. It depends on the returns and the regulations of course - but that would give some of the advantages of the free-market solution while still having safe, regulated banks at the core of the system. You'd have to also have regulations regarding how much the safe banks can lend to risky banks, but that's simple to enact.

03-17-2008, 08:38 PM	#10
mesZibeds Join Date Oct 2005 Posts 498 Senior Member	Originally posted by Oerdin Since you can't nationalize or send people to jail the only remaining option would be regulations to discourage the speculative behavior which caused the problems. The problem is that the speculative behavior is not entirely bad, as it fuels positive economic growth (particularly in an economy that has little left to grow in except speculation ... it's not like we produce much anymore); and it's very hard to determine where to draw the regulatory lines. And again, this is not the free-market way (nor is bailouts, of course); it would be much better to find a free-market solution to this free-market problem. In some ways, I think the best solution could very well be to have a separation between Speculative Banks and NonSpeculative Banks. Re-work the Federal Reserve legislation to the following: 1. The Federal Reserve will only support banks who agree to follow regulations blah blah blah no speculation blah blah higher reserve levels blah blah etc. 2. Banks not following these regulations are still permitted to exist, and may do whatever they want speculation-wise; but they will not be bailed out and their reserves are not FDIC-insured. They may continue to borrow money from non-Fed sources, but may not borrow money from the Fed. 3. No bank that is Fed-supported may own, or be owned by, or be jointly owned with a non-Fed supported bank, directly. Indirect ownership is only allowed in the normal ways where one bank's fall would have no effect on the other banks. I think you could end up with a situation, similar to mutual funds, where you have 'safe' banks that offer lower returns but are quite safe, and 'speculative' banks that offer higher returns and are somewhat risky. It depends on the returns and the regulations of course - but that would give some of the advantages of the free-market solution while still having safe, regulated banks at the core of the system. You'd have to also have regulations regarding how much the safe banks can lend to risky banks, but that's simple to enact.
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