– Tisha Casida
In theory, a banking system is supposed to create safety and prosperity for its customers – the people who make deposits and take out loans.
What happened in the past couple years in the United States is unprecedented and unsustainable, not to mention unethical. Hard-working Americans who trusted in their investments were taken to the cleaners, while those who stole their retirements, livelihoods, and future were the beneficiaries of a government-funded bailout.
Could this have been prevented? Of course it could have! Could we do better now? Of course we can! Here’s how.
Our financial system “was supposed to channel our hard-earned savings into the best real investments: new homes, offices, factories, equipment and research. And it was supposed to correctly price our assets”(Kotlikoff & Leamer, 2009). When it collapsed, it was doing neither of these because Wall Street had turned into a gambling machine.
Limited Purpose Banking (LPB) “would transform all financial corporations, including insurance companies and hedge funds, into mutual funds”(2009). These mutual funds would still be called “banks” and would be regulated by a new “Federal Financial Authority” (FFA) that would replace over 115 state and federal regulatory agencies (yes, that would probably save some taxpayers money, not to mention time, and heartache) and the FFA would “rate, verify, supervise custody, disclose and clear all securities purchased, held and sold by LPB mutual funds. Private rating companies could stay in business, but no one would need to trust them ever again”(2009).
Under such a system, banks would never fail because they would never hold financial assets, they would be limited to their “legitimate” purpose – being a financial intermediary.
The Good American Post will do our best to figure out how our readers and listeners can learn more and get involved, you can read a detailed article about LPB by Laurence J. Kotlikoff and Edward Leamer HERE.
Kotlikoff, L.J., & Leamer, E. (2009, April 23). A Banking System We Can Trust. Forbes.com. Retrieved from http://www.forbes.com/2009/04/22/loan-mortgage-mutual-fund-wall-street-opinions-contributors-bank.html.