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Limited Purpose Banking-Lawrence Kotlikoff
Old 06-06-2018, 06:37 AM   #1
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Limited Purpose Banking-Lawrence Kotlikoff

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.

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Old 06-06-2018, 09:50 AM   #2
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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.

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Old 06-06-2018, 10:42 AM   #3
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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.
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Old 06-06-2018, 11:02 AM   #4
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His proposal has a lot in common with Glass-Steagall
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Old 06-06-2018, 11:19 AM   #5
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Originally Posted by MichaelB View Post
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.
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