Perverse Incentives Are Endemic (TM)
Posted by Marc Hodak on March 30, 2015 under Self-promotion | 2 Comments to Read
Ethical Systems (ethicalsystems.org) is featuring me, the least distinguished of its collaborators, this month on their site.
To really throw in the towel on regulation, they should increase capital reserve requirements to 50%. When the Big Banks are risking much more of their own capital, they’ll be much less likely to do the risky but with good upside potential deals they’ve done in the past.
Fast track bankruptcy and faster conversion of debt into new equity (after old equity is wiped out) would also properly constrain the Big Banks.
Marc Hodak said,
That requirement would be quite a regulation in itself. If you’re going to go all in on deregulation, you might simply say that banks can do whatever they want, but that their shareholders don’t get the benefit of limited liability. That would admittedly put a real damper on credit, although probably not much more than a 50% reserve requirement, but it would pretty much eliminate the other problems with our current system: asymmetrical risk-reward; taxpayer backstop on deposit insurance; too big to fail; etc. I don’t know that I would really go all in that way, but I would consider it rather than the nationalization we seem to be moving towards.
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