Many people have discussed what to do about the banks. Burning Our Money provides one of the clearest debates I have seen to date about both the benefits and risks of regulation (it really is an excellent site):
“Crucially, we do have to split High Street retail deposit taking from investment banking activities – ie we need to implement our own Glass-Steagall Act (see this by the indefatigable Mr Stelzer).
The taxpayer has to guarantee high street bank customers against default on their own personal savings. Because history tells us that modern economies simply cannot operate if everyone keeps all their savings under the mattress.
But that is no reason to guarantee a bank’s liabilities to its wholesale creditors. They are mainly other banks and professional investors, and they should be required to consider the risk of default before ever committing funds. If they get it wrong, they should take the hit.”
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Filed in: Economics,Economy