Tuesday, 19 November 2013

A Positively Incentivized Systemic Risk-Taking System

Here is Kevin Dowd, a former professor of mine, explaining one of the biggest problems with the "modern financial system",
“The modern financial system has not only kicked away most of the constraints against excessive risk-taking, but positively incentivized systemic risk-taking in all manner of highly destructive ways . We have gone from a system that managed itself to one that requires management, but cannot be managed. We have gone from a system that was guarded by market forces operating under the rule of law to one that requires human guardians instead — but we have not solved the underlying problem of how to guard the guardians themselves.”
Read more here.

How to end this mess:
  • End fractional reserve banking and implement a 100% reserve ratio against deposits 
  • Remove central banks as lenders of last resort and interest rate manipulators
  • No company or institution should be considered "too big too fail" and no company or institution, large or small, should be allowed to be bailed out by government (read: tax payers) 
Also read  Why Basel III Will Fail and Isn’t Necessary Anyway

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