Tuesday, July 31, 2012

Gillian Tett — The Achilles heel of America’s financial system

The money market.

Read it at The Financial Times
The Achilles heel of America’s financial system
Gillian Tett
(h/t Yves Smith at Naked Capitalism)

1 comment:

Ralph Musgrave said...

Good heavens: the money market funds people, in effect, want their own TBTF subsidy. I.e. they want to take risks, with Uncle Sam picking up the pieces if it all goes wrong.

Well who can blame them? If there are regulators to be cajoled into agreeing to the above, or politicians who can be bribed, why not? I’m sending brown envelopes full of £20 notes to assorted politicians in London with a view to getting them to backstop my stock market investments with taxpayers’ money.

The solution to this bribery, corruption and moral hazard has been spelled out by Laurence Kotlikoff and Prof. Richard Werner.

The two latter advocate banking systems in which those who deposit money in banks or (or money market funds, come to that) have a clear choice between two alternatives, with a very clear line in the sand between the two.

Choice No 1: the bank does NOT INVEST deposited money, so little or no interest is earned. But depositors do have instant access to the money and in the unlikely event of the money being lost, the taxpayer foots the bill.

Choice No 2: the bank DOES lend on or invest deposited money. But in this case the depositor is into commerce. And there is no reason for the taxpayer to subsidise this form of commerce any more than the taxpayer should insure money I invest on the stock exchange.

If that line in the sand is rammed down everyone’s throats, that would put an end to bankers, etc sideling up to regulators and bribing politicians with a view to getting the taxpayer to underwrite commercial risks, (i.e. subsidise the pay and pensions of bankers, money market fund operators, etc).

For Werner, see:


Re Kotlikoff, as it happens I’ve just reviewed his latest book on my own blog:


But obviously his own guides to his ideas will be better than mine.