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Comments on: Moral hazard: The case to increase regulation http://www.tvhe.co.nz/2011/10/17/moral-hazard-the-case-to-increase-regulation/ The Visible Hand in Economics Mon, 17 Oct 2011 10:44:44 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: Miguel Sanchez http://www.tvhe.co.nz/2011/10/17/moral-hazard-the-case-to-increase-regulation/#comment-34671 Mon, 17 Oct 2011 10:44:44 +0000 http://www.tvhe.co.nz/?p=6169#comment-34671 Hmmm. I would make the case that it’s governments that have been subsidised for 323 years, by savers.  Having a central bank gives you the option of monetising the national debt.  And even before then, rulers found other ways of ‘subsidising’ themselves, e.g. Edward IV allowing the Medici bank to provide trade finance in England as long as they lent him as much as he wanted, with no real hope of repayment.  

]]> By: raf http://www.tvhe.co.nz/2011/10/17/moral-hazard-the-case-to-increase-regulation/#comment-34659 Mon, 17 Oct 2011 03:41:05 +0000 http://www.tvhe.co.nz/?p=6169#comment-34659 We could change the way banks are structured.

1) They could be strictly savings and loans institutions i.e. lending out what they take in.

2) We could shift from a debt system to an equity one.

3) We could have 100% reserves.

The current fractional reserve system encourages risky behaviours from banks and deposit guarantees simply add to that. Banks have had a taxpayer subsidy for 323 years and it’s about time we reclaimed some of that back. 

The purpose of a central bank should be to create money and manage its supply so as to keep its value stable.

People can use banks for storing this money or as lending vehicles for investing it.

Current system is kaput. 

 

]]> By: Miguel Sanchez http://www.tvhe.co.nz/2011/10/17/moral-hazard-the-case-to-increase-regulation/#comment-34650 Sun, 16 Oct 2011 22:48:10 +0000 http://www.tvhe.co.nz/?p=6169#comment-34650 Bagehot gave us the solution over a hundred years ago – lend freely at penalty interest rates. The reason we have a moral hazard problem is because central banks have built up a track record of doing the opposite, i.e. lending at below-market rates, and/or trying to lower market rates themselves, at the first whiff of liquidity problems.

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