Economic Meltdown Works Weekends

It seems that both blog production and blog reading go down dramatically on the weekends. This feels counterintuitive to me, since I work on what could be called a traditional M-F schedule and I have more time for blogging and blog reading on the weekends. Maybe I am just out of step with most of the rest of the world. It wouldn't be the first time.

Regardless, here are two items that I read over the weekend that are worth taking a look at:

First, here is a Bloomberg article which discusses former Fed Chairman Paul Volcker's idea for a two-tier system as the future of banking:

Commercial banks would provide customers with depository services and access to credit and would be highly regulated, while securities firms would have the freedom to take on more risk and practice trading, “relatively free of regulation,” Volcker said.

I realize we are nowhere near out of the woods yet, but it is never too soon to start thinking about how to avoid a similar catastrophe in the future. It is possible that identifying a system that could prevent the problems we have now from recurring might also provide some insight into just how to get out of the current situation.

In explaining economic matters of late, it seems that writers often resort to medical metaphors. Particularly those of patients on tables with acute coronary symptoms. Of course, when you're in the middle of a heart attack you want to talk to the intern with the defibrillator, not the dietitian with the tray of low-fat food from the cafeteria. But let's face it, our economy is not a sick patient so maybe the long term fix has some bearing on the short term one. Frankly, I blame E.R. for the rampant use of medical metaphors (For all the talk of zombie banks, that E.R. is a zombie television show. How many times has that show recycled its plots and characters? Wow. That was uncalled for.)

But Volcker's idea is definitely worth considering. It may be a way to provide meaningful regulation that can make our financial system stronger (not brittle) while not destroying the entrepreneurial spirit, which accounts for so much of our economic success.

Also, any future scheme (and any plan to fix the current mess) must protect depositors and must not protect shareholders. It has to have both elements. These days our government seems unable or unwilling to distinguish between people that deposited their money in institutions with an explicit guarantee of safety and those that put their money at risk by buying stocks and, to a lesser degree, bonds.

Speaking of protecting shareholders, Yves Smith at naked capitalism had a great post discussing the nationalization question. It is in the form of a call-and-response smackdown that she gives to a piece by Alan Blinder in the NY Times.

It's a long post, but worth the read if you want to be armed to tackle the question of nationalization. She puts a fine point on it right from the beginning:

...opponents to nationalization often raise the image of enterprises being expropriated by the state, in other words, healthy (or at least viable) businesses being stolen.

We have the reverse here. Instead a transfer of wealth from the private sector to the state, we have the state (as in the taxpayer) propping up businesses and keeping management demonstrated to be incompetent, perhaps corrupt...

I would try to create a sense of urgency for checking these out, but since neither involves massive spending on long sought after Democratic agenda items, I doubt the government will tackle either any time soon.