Thursday, March 12, 2009

Glass Steagal lite: does FT miss the mark?

Puzzling article this morning in the FT by John Gapper. The gist of it is to focus on the rumors of a restructuring of the banking sector. It is characterized as Glass Steagal lite.

Glass Steagal, the 1933 depression era legislation did 2 things
1/ separate ibanks from banks
2/ LIMIT THE AMOUNT OF DEBT BANKS COULD EMIT (at 12x capital)

the second point is, imho, orders of magnitude more important than 1. It is also not touched upon in this discussion. While I agree with 1, I am very frustrated by obvious conflicts of interest in my advisory relation with goldman, it is imho not as important. The amount of endogenous credit money in the system is the basis for dynamical explanations of breakdown in monetary analysis of debt deflation crisis in the Fisher, Minsky senses.

The invisible hand MUST NOT BE ALLOWED TO CONTROL MONEY LEVELS, EVER. IT HAS BEEN PROVEN OVER AND OVER.

Securitization essentially enabled banks to bypass these levels, by distributing the debt and clearing it off the balance sheets and replacing it with cash, thereby allowing for another round of debt. But from a system standpoint, the debt was there and it resulted in some unregulated entities being 40x leveraged. THAT IS THE MAIN ROOT OF THE PROBLEM: ****EXCESSIVE MONEY LEVELS****.

We need a focused Glass Steagal, that focuses on money levels with M3/M0 including debt money, not just M0 or federal base money. Securitization must be taken into account, not just the narrow liabilities/capital balance sheet accounting view of the banks. The TOTAL amount of debt money the banking sector CREATES, HOLDS AND DISTRIBUTES on a yearly basis (securitization), is what needs to be regulated, that IS neo-glass-steagal.

1 comment:

Jean-Luc Vanhulst said...

Ran into this website today:

http://www.deepcapture.com/