We don’t do leverage anymore.
Laurence Kotlikoff and Edward Leamer propose to greatly narrow the purpose and activities of banks in this week’s Forbes:
Under this system, banks would never fail for a simple reason. They’d never hold any financial assets and they’d never borrow except to finance their mutual fund operations. Instead, they’d be limited to their legitimate purpose–financial intermediation. Under LPB, people, not companies, bear risk as their mutual funds do well or poorly.
This is a fancy way of saying that private profit would now be tied to private risk.
Read the entire article. It is a much more serious attempt to fix what ails us than anything the political class is offering.
And that is why it won’t be done. There is no room for political chicanery in the system they propose. That is a major benefit, to us of it, but to the political class a system that can’t be jiggered to get votes and donations is a system they must stop at all costs.