Monday, March 23, 2009

Bank Regulation?

"Ground zero of the economic depression is the banking system--worldwide. The system is collapsed, exploded, demolished, gone ruined, kaput. The global banking system was a house of cards, and it has fallen. Governments and central banks everywhere do not yet realize this. They are attempting to rebuild the house from the pieces and scraps scattered far and wide. ... Government after government, and this includes the federal government of the US, has shown itself incapable of controlling bank lending, while simultaneously mandating a single national currency and insuring bank deposits. Banks are always one or more steps ahead of regulators, or else obtain concessions that allow them to take on inordinate risks. Central banks and governments are always all too ready to count on central banks to encourage banks to make marginal and risk loans. ... Banks are all too ready to take inordinate risks using insured bank deposits. ... Regulators are all too slow to identify and control banking behavior. ... The failed government banking system rests on a basic false assumption. The idea that government regulators should control money and banking because the market cannot. That idea is entirely false. ... In a market system, individual banks that provide loans and create deposits and that issue their own bank notes, cannot long survive without prudent policies. ... In the existing government and central banking system, this discipline is absent. Banks that are in a central bank system do not issue their own notes, so there is no pricing of their currencies. ... In a market system, if a bank over-issues, or makes bad loans, or makes loans that endanger its ability to meet deposit withdrawals, its notes depreciate in the market place. This induces people to present the notes for redemption. If the bank is not to experience a bank run, it must heed the market price of its notes", Mike Rozeff, 5 March 2009 at http://www.lewrockwell.com/rozeff/rozeff278.html.

Bank runs are good! They discipline banks! The regulators can't or won't.

2 comments:

Anonymous said...

IA... my family owned banks like Rozeff described in the 19th and 20th centuries and I have bank notes which they signed... it would be interesting to think how that system would work now with the net etc... I can assure you that prudence was the watchword and understanding the community and where things were moving was key... I think we can blame the current model on 'ol JP Morgan who gave the government a taste of central banking/securities issuance/credit expansion....what a giant mess we have...

Junior said...

I have a bank run on my mattress every 1st of the month trying to scrape together enough for rent...

...WHEN oh when will the powers-that-be get this? Or are they too stubborn to admit A) they blew it B) they kept blowing it by throwing more cash into the fire and now we've burned our way into ridiculous inflationary monetary policy?

Tsk tsk.