Limited Purpose Banking-Lawrence Kotlikoff

[haha]

https://seekingalpha.com/article/41...orm-sadly-lives?app=1&isDirectRoadblock=false

In this piece Kotlikoff argues that our banking system is always highly exposed to catastrophic failure, as we experienced in 2008. He proposes a financing system entirely based on equity, and offers mutual funds as a model. Fractional reserve banking, which is the current system, would become illegal.

I can't intelligently argue this idea, but IMO Kotlikoff can. He seems quite capable, to me at least.


Ha

 

[ERD50]

I think I like it, in the same way that I view Vanguard or an ETF as just holding the records that I own actual 'stuff'.

But I got lost - where does borrowing happen? Is this just squeezing a balloon and having it pop out somewhere else - the total volume/problem hasn't changed? Though keeping them isolated may be a good thing in itself.

-ERD50

 

[GrayHare]

I would imagine the increased safety provided by such diversification would cause banks to take greater risks, which in this case will come at the expense of the group.

 

[MichaelB]

His proposal has a lot in common with Glass-Steagall

 

[GravitySucks]

His proposal has a lot in common with Glass-Steagall

Going back to Glass-Steagal would make sense but the forces that be aren't even happy with Dodd-Frank. I fear even the current regulations will be eroded to the point they are useless and we will have a new 2008.