Saturday, November 1, 2014

Safe Banking Without The FDIC

Imagine a bank that only makes home loans.  What if it only lent where it was the first lender to be paid back?  And only lent up to 70% of a property's non-bubble value?  If it it always followed those criteria and only lent to people with good credit, the loans it makes are very likely to be repaid.

Where the borrower gets the rest of the funds shouldn't matter to a bank that doesn't lend too much and is always paid back first.   Such a bank could profitably charge less interest than banks lending the higher risk part of the financing.

So why can't we have such banks for those that want to have a safe place to deposit their funds?  Why do we need the government to insure banks in order to provide a very safe banking option?

I don't think we need government insurance.  All we need are banks that are restricted to this very safe kind of mortgage loan.  Those that want safety can put their money in this kind of bank.

And those who want greater return can go to other banks that make riskier loans and where your deposits are at risk if the bank fails. And government funds would not bail out this kind of bank or its depositors, just as it does not bail out people who invest in the stock market.

And if either kind of bank fails, the owners of the bank should lose their investment.  But the depositors don't have to lose their deposits.  The bank's loans and their collateral could be turned over to a new, publicly-traded corporation owned by the depositors, who could either sell or hold their shares in that new entity.

There's no need for a bank failure to cause depositors to lose all their money.  The collateral, the assets the loans were used to buy, still exist.  But the bank can no longer pay its depositors their money on demand, so let it cease to be a bank.

There's no reason to enable unsuccessful bankers to continue to operate.  There's no need to spend billions of taxpayer dollars.

Sunday, May 5, 2013

Solving Unemployment By Making Markets Work

Status of minimum wage in 2006 in United State...
Status of minimum wage in 2006 in United States and territories (Photo credit: Wikipedia)

Sometimes I think it would be cheaper to eliminate the minimum wage and have the government directly hand the working poor a subsidy for every hour worked than to have the Fed and the government continue destroy the functioning of the marketplace in a vain effort to make unemployment go away.

I don't like the government doing either thing, but destroying the functioning of markets is far, far worse than a handout based on how much you work, even considering the fraud that might produce. Especially considering the amount of fraud the activities of the Fed enable.

If we gave every worker earning less $12 an hour a subsidy of 50 cents for each dollar they earned below $12 an hour, those whose labor is only worth $6 an hour would take home $9. Those worth $8 would take home $10, Those worth $10 would take home $11. 

The earned income tax credit may work like this, but I doubt its adjustment is as steep. And workers must wait until the end of the year to qualify.

No doubt a similar thing could be accomplished by eliminating taxes for the working poor. The payroll tax cut is tiny and not targeted at low wage workers.

If prices of the lowest price labor were allowed to fall to where employers could afford to hire them, their skills would start to grow again and eventually the subsidy would shrink.

Republicans won't go for doing something like this because all new spending for the poor is evil. Democrats won't go for it because it disposes of their precious minimum wage, something Republicans don't view as damaging as the actual spending of money.

The minimum wage has other bad effects too.  By placing a floor on what you can earn instead of an escalator, the working poor don't get immediately rewarding for becoming more productive.  Earning minimum wage at one job is as rewarding as earning the same wage at another job.  Improving one's productivity is only rewarded when your value as an employee rises above the threshold of the minimum wage.

Which means that those who earn the least get the least positive feedback for their efforts.  That's a terrible side effect.

Tuesday, April 2, 2013

Taxation Without Good Representation

West Courtroom
West Courtroom (Photo credit: afagen)

Imagine if you and other parties suing each other had to hire a single lawyer to represent all of you. And you could only pick from a few pre-approved choices. And then that lawyer spent half his time fundraising from people that stand to gain or lose depending on how he handles the lawsuit.

That would be stupid, of course. Each party needs their own representation. And you should be able to select any lawyer you like. And he certainly should not be allowed to collect money from people who would profit from your interests being poorly represented.

And yet, we put with all of that from our representatives in Congress. Instead of proportional representation where each kind of voter can select his kind of representative, we only get one representative per district that can't possible represent all the competing interests of the voters. 

Such a representative is beholden to no one and can freely rent his vote to the highest bidder.

And they need the money, because getting all those voters to think that he's the best one for the job is an expensive effort. 

In a system using proportional representation, the diverse interests of the voters are better represented and less subject to gaming by the monied special interests. 

The solution to the corruption in Washington is not campaign finance reform. The solution is allowing you to have the representation of your choice.

Saturday, February 16, 2013

Without Balance, We Will Keep Stumbling

Jones! (Photo credit: gomattolson)

We need a balanced budget amendment. There's no reason that the world's richest nation cannot pay its expenses as it goes, even if there is an emergency.

Say we have an emergency that costs a trillion dollars. We can pay it off over 50 years with a temporary tax, just as you would pay off a mortgage. 

Mind you, I am not proposing more taxes. I'm just saying that true financial emergencies can be dealt with by levying a tax that pays off the amount we need to spend. And that can be done in a predictable way over time. 

In other words, an emergency is not a legitimate excuse to avoid manage one's affairs responsibly. You borrow what you need and you pay it back on a schedule that pays it off.

Of course, in reality, there are very few few legitimate emergencies.  Its just an excuse politicians use to justify their addiction to spending more than is taken in.
A balanced budget requirement will force Congress to make the hard choices. If they want to spend, they will have to tax. And if the people don't want more taxes, they will have to pus h cuts. I'd even put budgets to a referendum, with the new taxes spelled out.

Without a balanced budget, we can have tax cuts and spending increases. Everybody can get what they want, until the shit hits the fan and our ability to deal with true emergencies is greatly impaired.

Sunday, March 11, 2012

A Balanced Budget Amendment We Can Live With

Second round of the French presidential electi...Image via Wikipedia
We have to get a balanced budget amendment. I'd like to see any budget with a deficit subject to referendum that also approves immediate taxes to pay it down within 10 years.

And if we have a war or other emergency that requires spending, Congress should be free to start spending, as long as a referendum that approves or vetoes the spending is arranged promptly.

And we need a tax to pay off the existing debt, all of it, within 50 years in the same amendment.

There's no reason the richest country in the world should operate the way it does. The result will be our decline and eventual loss of any power in the world. We cannot expect to compete with other powers technologically and militarily if we don't get our economic house in order.

A lot of people like to talk about democracy, but actually giving the people control over how much debt they are getting into is not what they have in mind.  Many want a process that they can game to their own advantage.

In the US, the trappings of democracy is used to keep the people under control, not to give the people control over their government.  And debt is used to keep the people from understanding the real costs.

Its time we took off the backwards sunglasses.

Saturday, February 18, 2012

Why Income Inequality is A Great and Necessary Thing

Northern Minnesota MineNorthern Minnesota Mine (Photo credit: cliff1066™)
Income inequality is a sign that an economy is functioning properly, for people vary greatly in their talents, ambition, tolerance for risk, vision. Some can lead, delegate and inspire, while others cannot. 

Some are great at collaboration, others love confronting difficult challenges. Some are great at squeezing suppliers and others good at pushing people to adopt the next wave of technology. Some know exactly what people want and others are incredibly creative. Some never stop learning.

Some do none of the above and only want everything defined for them with no risks or growth required.

How could anyone analyze all of this incredible variability and decide whether people get too much money for their contributions?

Income inequality rewards the development of all of those qualities.  We all benefit from what high producers produce.

And then they put what they earn in the bank where we can borrow it to make ourselves more productive.

How is that not beneficial for every person in the country?