The case for narrow banking
Here’s my first post under the new approach to blogging I’m trying. It’s the intro to an article I just published in The National Interest. They ran it under the headline “The Next Global Collapse” which is a bit more dramatic than the article itself. The deal with TNI is that I can published the first three paras here, to tease your interest. Thinking about how best to work this, it struck me that it would be really great if readers here would follow the link, comment on the article at TNI, then repost their comments here. Perhaps this might just be duplication, but it might also lead to quite different conversations. So, please give it a try
Four years after the near-meltdown of the global financial system, the world is no closer to an adequate system of financial regulation than it was in 2008. Attempts to regulate the market for derivatives have been stymied by a mixture of determined resistance from the industry and the technical difficulties of defining and regulating such complex and opaque financial instruments. The “shadow-banking” system, associated with investment banks, hedge funds and other speculative financial institutions, is as large and dangerous as ever.
Right now, the only thing preventing a new bubble and bust is the memory of the last one. And with the return of massive profits and bonuses to Wall Street, that memory is fading fast. Already, observers are noticing a renewed appetite for risk, fueled in part by the low returns available on relatively safe investments such as U.S. Treasuries.
As in most unwinnable wars, the time has come when the best option is, in the immortal words of Republican senator George Aiken (speaking of Vietnam) to declare victory and get out. But what does getting out mean, as far as the shadow-banking system is concerned?