The problems of banking and potential solvency issues cannot be disggregated from the idle speculation which makes it inherently unstable. As the vast majority of bank lending is to real estate, and only the land value portion rises in value during a cycle it should also be clear the vast majority of this problem lies in land speculation. As banks create more credit they only facilitate the bidding up of land value which in turn increases bank assets. This is a positive feedback loop which will always create a bubble and malinvestment . Steve Eisman, portrayed by Steve Carrell in 'The big short' has recently noted that while Dodd Frank probably won't be reversed, interpretations will shift sideways. There are all sorts of methods and tricks banks and speculators will employ, from legal arbitrage to outright fraud. And what is more governments will feel further pressure to turn a blind eye as the cost of land burdens economic productivity further. Following the 01 dot com crash (which was also in part a local land bubble)Paul McCulley of Pimco , 'Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.' While Greenspan apparently took this advice to absurd proportions, this was in most respects an otherwise typical cycle in land prices. As Michael Hudson has noted '. For the past century or so, it usually has taken 18 years for the typical real estate cycle to run its course.', which was why, roughly, an 08 crash could be predicted way back in 1997. That is why I see a land value tax as a vital 'bank' reform. georgewashington2.blogspot.co.uk/2010/10/michael-hudson-debt-grows-exponentially.html
I agree with most of that, a lot of IP law could simply be abolished. Some IP is legitimate in providing incentives beyond first mover advantage, and I think a self assessed tax system could work. The prospective monopolist sets their IP value, and is taxed as a rising % of that, and at anytime the govt or a rival can buy up the IP at the full amount and end the exclusivity rights. That way the monopolist has an incentive not to set the value too high because of the tax, nor too low because of the chance of being bought out cheap. Though the list bank reform proposals sound rational, evaluating all of them does go somewhat beyond my pay grade. Generally I don't think there is one ideal set of proposals out there, there are only different ways of balancing risks and incentives, I certainly think there is a role for private banks... I only say in the context of a rent seeking boom bust economy, these proposals can only do so much. I also like Steve Keen's proposal that private banks should be buying equity rather than getting a return from interest spreads. By the same token It also makes sense to end short term incentives in the shareholders model, that could be done by keeping some corporate income tax on any company which issues shares, but removing it entirely from equity finance.
Agreed. A key part of the problem is our credit-fueled, speculation-driven property (i.e., land) markets. An annual charge to holders of land equal to its potential annual rental value would help tame the cycle. Note, however, that there are many other sources of rent-derived income that is unearned and should be publicly collected.
