Mosler proposals on the financial system

[William Hummel]

Warren Mosler posted a proposal, dated Oct 11, 2009, for changes to the US financial system.  Taken all together, they constitute a radical revision to the current system.  The proposal can be seen at http://mosler2012.com/wp-content/uploads/2009/03/toronto.pdf. 

Warren is an original thinker, and I have great respect for his views.  I don't agree with some of them but they are all food for thought.  Here are a few of his proposals:

1. Banks should only be allowed to lend directly to borrowers, and then service and keep those loans on their own balance sheets.

2. Banks should not be allowed to accept financial assets as collateral for loans

3. The Fed should lend unsecured to member banks, and in unlimited quantities at its target Fed funds rate, by simply trading in the Fed funds market.

4. The current zero interest rate policy should be made permanent. This minimizes cost pressures on output, including investment, and thereby helps to stabilize prices. It also minimizes rentier incomes.

5. Cease all issuance of Treasury securities. Instead any deficit spending would accumulate as excess reserve balances at the Fed.

For the current recession, Mosler proposes:

1. A full payroll tax holiday where the Treasury makes all the contributions for employees and employers.

2. Distribute $150 billion of revenue sharing to the State governments on a per capita basis.

3. Have the Federal government fund $8/hr full time jobs for anyone willing and able to work, that includes health care benefits.

[Lante...@aol.com]

Where have all Mosler's good ideas been? Are any being considered? Why not?

[jim blair]

 

----- Original Message -----

From: William Hummel

To: Google Group

Sent: Saturday, November 07, 2009 6:20 PM

Subject: Mosler proposals on the financial system

Warren Mosler posted a proposal, dated Oct 11, 2009, for changes to the US financial system.  Taken all together, they constitute a radical revision to the current system.  The proposal can be seen at http://mosler2012.com/wp-content/uploads/2009/03/toronto.pdf. 

Warren is an original thinker, and I have great respect for his views.  I don't agree with some of them but they are all food for thought.  Here are a few of his proposals:

1. Banks should only be allowed to lend directly to borrowers, and then service and keep those loans on their own balance sheets.

Hey, I proposed  that in the earlier discussion of the current problem.  Banks should not be able to sell their loans/mortgages off to a 3rd party. If they

can, where is ther incentive to screen applicants?  Who suffers when there is a default?

2. Banks should not be allowed to accept financial assets as collateral for loans

 

As opposed to what assets?  Collateral: what you show the bank to prove that you don't need the loan.

3. The Fed should lend unsecured to member banks, and in unlimited quantities at its target Fed funds rate, by simply trading in the Fed funds market.

4. The current zero interest rate policy should be made permanent. This minimizes cost pressures on output, including investment, and thereby helps to stabilize prices. It also minimizes rentier incomes.

 

??? What is the current zero interest rate policy?  The banks would charge ME interest on a loan.

5. Cease all issuance of Treasury securities. Instead any deficit spending would accumulate as excess reserve balances at the Fed.

 

Would that be inflationary?  Like "printing money"?

For the current recession, Mosler proposes:

1. A full payroll tax holiday where the Treasury makes all the contributions for employees and employers.

 

"Payroll Tax" as in FICA?  Or as in "withholding income tax"? 

 

If the first, isn't that just a handout to the already employed?  Is that fair to the unemployed, the retired, and others without a job?  And where would Social Security benefits come from?  Think Congress would appropriate money to fund the current no- means- test benefit system?

 

If the second, that is what GHW Bush did--just increase the tax due on April 15. 

2. Distribute $150 billion of revenue sharing to the State governments on a per capita basis.

 

But without selling bonds (see point #5)?   Would they just print the money?

3. Have the Federal government fund $8/hr full time jobs for anyone willing and able to work, that includes health care benefits.

 

Jobs doing what?   Or does he think that matters?

[John Hermann]

At 02:50 AM 8/11/2009, William Hummel wrote (Mosler proposals):

4. The current zero interest rate policy should be made permanent. This minimizes cost pressures on output, including investment, and thereby helps to stabilize prices. It also minimizes rentier incomes.

Not sure about the virtues (or otherwise) of zero interest.  However implementation of a 100% reserve system would effectively end the payment of interest on deposits, which would allow financial products like term deposits to be replaced with low-risk alternatives such as government infrastructure bonds. This invested money would be on-loaned for the support of useful productive activity, with guaranteed returns -- rather than being merely deposited. And the practice would certainly contribute to the objective of minimizing rentier incomes (economic rent).

John Hermann

[Bill Moldestad]

Could someone explain to me how Mosler's 5th point works? Such as,
when the government is not able to collect sufficient tax revenue to
meet its current outlays, then would it simply require that the
Federal Reserve create and put the needed funds into the Treasury's
Federal Reserve account? And are these newly created funds the excess
reserve balances mentioned?

And regarding the 4th point, I have to agree Jim that this is
confusing to me too. Technically, isn't the Fed targeting the Fed
Funds rate between 0 to 0.25%? I guess whatever the rate is, is a
trivial point, instead, what scares me is how this would effectively
make the Federal Reserve no longer the overseer of monetary policy.
After all, the way the Federal Reserve controls short term rates and
influences long term rates now is by targeting a specific Fed Funds
Rate, and managing reserve balances to try to meet this ever changing
goal. If you were to effectively get rid of this goal, that is make
the Fed Funds rate zero, forever, then what the heck would be the
function of the Federal Reserve, other than to provide banking
services and loans to any member banks at 0%.

Am I to understand Mosler's proposal to be advocating putting our
monetary policy entirely in the hands of the private banking system?

On Nov 7, 10:20 am, William Hummel <wfhum...@ca.rr.com> wrote:
> Warren Mosler posted a proposal, dated Oct 11, 2009, for changes to the US financial system.  Taken all together, they constitute a radical revision to the current system.  The proposal can be seen athttp://mosler2012.com/wp-content/uploads/2009/03/toronto.pdf. 

> Warren is an original thinker, and I have great respect for his views.  I don't agree with some of them but they are all food for thought.  Here are a few of his proposals:1. Banks should only be allowed to lend directly to borrowers, and then service and keep those loans on their own balance sheets.

> 2. Banks should not be allowed to acceptfinancial assetsas collateral for loans

[SteveH]

I don't think I'm misrepresenting Mosler, but someone correct me if
I'm wrong:

Regarding Mosler's 5th point, his point is that government spending
precedes government borrowing. Government spending causes reserves to
accumulate within the banking system, which are then "borrowed back"
or taxed in order to enable the Fed to maintain a non-zero Fed Funds
rate, and to control aggregate demand. Any addition (via Fed
purchasing of gov debt) to treasury balances at the Fed only becomes a
reserve addition when the balance is actually spent by the government.

He's just pointing out the operational reality that government
spending creates the funds with which the public "lends" to the
government. He would deny that the traditional government borrowing
constraint is relevant to a flexible exchange rate, non-convertible
fiat regime where government borrowing is discretionary. He sees the
requirement that government borrow to fund it's deficit as placing an
artificial, and not necessarily economically constructive, constraint
on the power of government. He also sees monetary policy as a blunt
and often ineffective tool for economic management, and believes that
fiscal policy could play a much greater and more effective role, if it
were allowed to. I think he would use fiscal policy to control
inflationary pressures, rather than monetary policy.

As far as I can tell, he sees no distinction between paying interest
on government debt, and paying interest on reserves. I disagree with
this, as one is a risk free subsidy to bondholders in general, while
the other is a risk free subsidy to banks. I'm not sure about zero
interest either. I'm yet to be convinced that this would not stoke
destructive asset bubbles.

[William Hummel]

Steve, I think you have represented Mosler's correctly.  I agree with your comments about the distinction between paying interest on government debt versus paying interest on reserves.   I am puzzled by Mosler's proposal to set the Fed funds rate at zero permanently.  The only way I can see that working is with tight rules on bank lending, the type and amount, as the means of controlling the general level of asset prices.  That may be what Mosler is proposing.

The Fed funds rate is an interbank lending rate for reserves, not an administered rate like the Fed discount rate.  The FFR can only go zero when the Fed has increased the supply of reserves well above the demand.  The implication is that banks would then hold excess reserves on deposit at the Fed as a normal condition, but would not be able to use them to back discretionary lending.  This also implies that the Fed funds market would become nearly dormant.

I think Mosler makes a fetish of the concept that government spending necessarily precedes government taxing and borrowing.  It implies that the nation came into existence with no money and the government had to write hot checks to create the money that the private sector needed to pay taxes and run the economy.  This is incorrect historically, and in my view naive.   The original money supply existed in the form of precious metal coins, many of foreign origin, and the government acquired a share through taxes and duties.  By the time the Federal Reserve was created, the Treasury had already acquired a substantial amount of money to pay for government spending.  In the steady-state, the Treasury maintains a balance through taxes and bond sales which preclude the need to borrow directly from the Fed, except in extremis as during World War II.

Regarding fiscal policy as the means of controlling the general level of asset prices, I don't think that has worked since perhaps the Eisenhower administration.  In fact "fiscal policy" is now a sort of oxymoron.  With our dysfunctional Congress of 535 members whose top priorities are reelection, the notion that a fiscal policy exists  at all stretches credibility.  Nowadays, legislation on government spending and taxation run more or less independent of each other.  In any case fiscal policy has significant lags which make it a crude instrument at best. 

Discretionary spending is governed largely by special interest groups and corporations.  That spending is designed to create constituencies for members of Congress to guarantee the votes needed for continued passage.  Taxes are also subject to similar but independent pressures rather than sound fiscal criteria.  That leaves monetary policy (interest rates) and financial regulations as the only effective tools available.  Unfortunately the regulators themselves usually become captive of the same special interests.  Repeated financial crises and market price bubbles seem to be a natural characteristic of our system.

William

[William Hummel]

Bill Moldestad wrote:

Could someone explain to me how Mosler's 5th point works?  Such as,
when the government is not able to collect sufficient tax revenue to
meet its current outlays, then would it simply require that the
Federal Reserve create and put the needed funds into the Treasury's
Federal Reserve account?  And are these newly created funds the excess
reserve balances mentioned?
  

I'm not sure how Mosler would implement the 5th proposed item.  Since the Treasury can't create base money itself, it seems that the Fed would simply pay for all deficit spending by crediting the payee's banks with Fed funds.  That's essentially what crediting the Treasury's account would do.  With the deficit currently running around 1.5 trillion and probably continuing for several years, it's hard to imagine how such a huge supply of excess reserves would be used.   

And regarding the 4th point, I have to agree Jim that this is
confusing to me too.  Technically, isn't the Fed targeting the Fed
Funds rate between 0 to 0.25%?  I guess whatever the rate is, is a
trivial point, instead, what scares me is how this would effectively
make the Federal Reserve no longer the overseer of monetary policy.
After all, the way the Federal Reserve controls short term rates and
influences long term rates now is by targeting a specific Fed Funds
Rate, and managing reserve balances to try to meet this ever changing
goal.  If you were to effectively get rid of this goal, that is make
the Fed Funds rate zero, forever, then what the heck would be the
function of the Federal Reserve, other than to provide banking
services and loans to any member banks at 0%.

Am I to understand Mosler's proposal to be advocating putting our
monetary policy entirely in the hands of the private banking system?

 Mosler doesn't provide enough detail in his proposal to make a coherent picture of how the system would work.  Evidently the Fed would depend on administrative control of bank lending rather than interest rate control.  That would make it much more difficult to manage because the rules are subject to interpretation by bank lawyers with differing views. 

[William Hummel]

The term "rentier income" is usually a pejorative, but I don't see any real difference between interest on a loan and interest a bank deposit in that sense.  One is an direct loan to a borrower, e.g. a bond, and the other is a indirect loan to a borrower through a bank.  Would you outlaw the lending of money at interest to a corporation that manufactures and sells cars, for example?

William

[jim blair]

Hi,

 

I suppose his "payroll tax holiday" (assuming he means FICA) is to expand consumer demand as a stimulus. I wonder if this is for the current recession which is already over, or forever?

 

At any rate, this would be one of the least fair ways to do that.  It reminds me of the McCain-Hillary "gas tax holiday" from the 2008 campaign.

A suspension of FICA benefits those currently employed, the higher their wages the greater their benefit.  Why not an expansion of the EITC?

 

https://mywebspace.wisc.edu/jeblair/web/91.txt

 

Or if he wanted to be really radical, Milton Friedman's "Negative Income Tax" that would provide an income floor even to the unemployed or otherwise without jobs (retired, never employed, self employed, etc).  Either of these would provide more money to those with lower rather than higher wages/incomes.

----- Original Message -----

From: William Hummel

To: Google Group

Sent: Saturday, November 07, 2009 6:20 PM

Subject: Mosler proposals on the financial system

Warren Mosler posted a proposal, dated Oct 11, 2009, for changes to the US financial system.  Taken all together, they constitute a radical revision to the current system.  The proposal can be seen at http://mosler2012.com/wp-content/uploads/2009/03/toronto.pdf. 

[John Hermann]

4. The current zero interest rate policy should be made permanent. This minimizes cost pressures on output, including investment, and thereby helps to stabilize prices. It also minimizes rentier incomes.

Not sure about the virtues (or otherwise) of zero interest.  However implementation of a 100% reserve system would effectively end the payment of interest on deposits, which would allow financial products like term deposits to be replaced with low-risk alternatives such as government infrastructure bonds. This invested money would be on-loaned for the support of useful productive activity, with guaranteed returns -- rather than being merely deposited. And the practice would certainly contribute to the objective of minimizing rentier incomes (economic rent).   JH

The term "rentier income" is usually a pejorative, but I don't see any real difference between interest on a loan and interest a bank deposit in that sense.  One is an direct loan to a borrower, e.g. a bond, and the other is a indirect loan to a borrower through a bank.  Would you outlaw the lending of money at interest to a corporation that manufactures and sells cars, for example?   William

Firstly, I am not opposed to lending money at interest.

Secondly, the dynamics of bank loans and deposits in interest-bearing accounts are somewhat different. In summary: 
    1. A bank loan to a non-bank borrower entails depositing newly created credit money in the account of that borrower, and the money supply increases. When any of this credit money is transferred to the custody of another depository, an equal quantity of reserves is transferred between the relevant central bank accounts. 
    2. When a deposit is made by a non-bank entity, new credit money is created as an entry in the depositor's account. The money supply does not change, however an equal quantity of reserves is acquired by the depository. If it is an interest-bearing deposit, then the depository acquires excess reserves.

Interest income received by a bank from its loan assets can be justified by regarding it as a conjunction of a service fee, a charge to cover risk management, a component to cover the bank's spending costs - including tax, and a reasonable profit margin for the bank's shareholders. By and large, interest is accepted by the community (rightly or wrongly) as a legitimate charge, since banks provide a useful community service.

But what useful service can be said to be provided by a depositor, which would justify that depositor receiving interest? It might be held that the reserves freed up by money placed in a deposit account will be used by the bank to support a productive activity. However banks are under no obligation to use their excess reserves at all. At the present time the US banking system is awash with reserves; banks are simply hoarding them - and earning interest for doing so. And even when a bank uses its excess reserves to support the creation of a new asset, there is no guarantee that the asset will be productive, useful to the community, or free from substantial risk. In these respects, infrastructure bonds are vastly superior to interest-bearing deposits.

JH

[John Hermann]

At 05:06 PM 9/11/2009, jim blair wrote:

Hi, I suppose his "payroll tax holiday" (assuming he means FICA) is to expand consumer demand as a stimulus. I wonder if this is for the current recession which is already over, or forever?   ...

If the recession is over, why is US unemployment in excess of 10 percent and still growing?

JH

[William Hummel]

John Hermann wrote:

Interest income received by a bank from its loan assets can be justified by regarding it as a conjunction of a service fee, a charge to cover risk management, a component to cover the bank's spending costs - including tax, and a reasonable profit margin for the bank's shareholders. By and large, interest is accepted by the community (rightly or wrongly) as a legitimate charge, since banks provide a useful community service.

But what useful service can be said to be provided by a depositor, which would justify that depositor receiving interest? It might be held that the reserves freed up by money placed in a deposit account will be used by the bank to support a productive activity. However banks are under no obligation to use their excess reserves at all. At the present time the US banking system is awash with reserves; banks are simply hoarding them - and earning interest for doing so. And even when a bank uses its excess reserves to support the creation of a new asset, there is no guarantee that the asset will be productive, useful to the community, or free from substantial risk. In these respects, infrastructure bonds are vastly superior to interest-bearing deposits.

I agree that the purpose of a loan is important in rating its value to the community, but that is not the issue.
The justification for a depositor receiving interest on a term deposit in a bank is that his funds are committed for the duration of the term.  This gives the bank the ability to better manage cash flow and thus issue longer term loans with less risk and therefore at lower rates.  The depositor, the bank, and the borrower all benefit as a result.  As an intermediary, what kind of loan a bank may make is a matter for the legislature and the monetary authority to establish and enforce, not the depositor.  Term deposits are an important part of a bank's resources.  Depositors would have no incentive to tie up their funds without remuneration because of the time value of money.

William

[jim blair]

Hi,

Several answers. Resessions are not defined by the unemployment rate, but more closely by the GDP.  I say that by next year the record will show that this recession ended during the summer of 2009.

Unemployment rate is a laging indicator, and typically continues to rise after a recession ends

And maybe most important, the federal minimum wage was increased in each of the last 3 years (2007,8 &9).  In the past an effort was made to increase it during an expansion, not when a recession was beginning.

[John Hermann]

Hi Jim,  Two quarters of negative growth, as measured by GDP, is the usual definition of recession given by orthodox (neoclassical) economists. However I disagree with the orthodoxy on several matters, including the value or relevance of GDP as a measure of economic health. One reason being that GDP uses a very narrow concept of economic development and economic well being, based on a concept of "growth" which counts items having a negative impact on society and the environment as positives. Moreover I regard the level of employment as a very important indicator of economic health, whether it is lagged in regard to other indicators or not.   John Hermann.

[SteveH]

William

Your point about the capturing of fiscal policy by private interests
is one reason I'm skeptical of Mosler's policy recommendations. I
don't really see how they can work without substantial political
reform. But I think that his ideas are valuable in many ways - for
example, he points out how many of our current policy recommendations
are based on outdated and inapplicable models of the economy, such as
the loanable funds theory (government borrowing crowding out private
borrowing, causing interest rates to rise, etc), and his "follow the
money" approach appears to have much more logic behind it than extant
economic theories that fail to recognise that borrowing creates
saving, rather than the reverse.

He meets a lot of resistance from people who see his policies as
advocating a blank check book in the hands of the government, with
attendant inflationary concerns, but I think to be fair to him he does
recognise that inflation is always the limiting factor with government
spending, rather than artificial financial constraints.

The chicken and egg issue of fiat money creation is an interesting
one, and your point is valid. I don't know how he would respond to it
- perhaps it doesn't matter either way.

[William Hummel]

Steve,

I agree with Mosler's observations that borrowing creates savings and on the false "loanable funds theory", although both fly in the face of conventional wisdom which leads to misguided fiscal policy.  However I don't think his proposal to set the Fed funds rate at zero permanently is sound, or consistent with your comment about his views on inflation.  I think he is overly impressed with the Japanese experience in the last couple of decades regarding the virtues of a near-zero interest rate policy.  The Japanese depend heavily on personal savings for retirement rather than pensions and social safety networks as most Americans do.  As a result the threat there has been more on deflation and than inflation.  I doubt that a zero interest rate policy would work in the US, considering what it would do in creating asset price bubbles.

I would be interested in your view of Mosler's ELR proposal regarding the unemployment problem.  I doubt that a so-called buffer stock of labor which presumably moves between government jobs and private enterprise depending on economic conditions is practicable .   I suspect it would end up creating a large and permanent cadre of government-paid "workers" with with little or no aspirations to higher paid private industry jobs.  Personally I favor other approaches, along the lines of specialized national services as exist in some European countries.

William

[John Hermann]

Hi William,  I recognize your point about the desirability of matching the distribution of risk attached to available funds (i.e., reserves) with the risk distribution of corresponding assets. The risk of losing the funds and/or the assets is usually correlated with the assured time-spans of those useable funds and assets.

However this is not an argument for maintaining term deposits per se. That is, there are alternatives to interest-bearing deposits which accomplish the same objective. For example, within a 100% reserve system, where "banks" would operate as true intermediaries (borrowing and re-lending money deposited in a national depository). For such a monetary system, in place of a tranche of term deposits (with different interest rates, according to the time-span of their maturity), one could have a similar tranche of  government infrastructure bonds. The financial institutions would act as intermediaries in several respects. In particular, they would acquire these bonds from the Treasury, and would make a profit from the interest margins (difference between interest received from Treasury and interest paid out to investors). As with term deposits, the risk would be correlated with the date of maturity. The big difference being that (a) these investments necessarily would be directed to something productive and useful to the wider community, and (b) there would be little or no danger that the funds would be frozen by the financial intermediary and unused.

John Hermann

[William Hummel]

John Hermann wrote:

Hi William,  I recognize your point about the desirability of matching the distribution of risk attached to available funds (i.e., reserves) with the risk distribution of corresponding assets. The risk of losing the funds and/or the assets is usually correlated with the assured time-spans of those useable funds and assets.

However this is not an argument for maintaining term deposits per se. That is, there are alternatives to interest-bearing deposits which accomplish the same objective. For example, within a 100% reserve system, where "banks" would operate as true intermediaries (borrowing and re-lending money deposited in a national depository). For such a monetary system, in place of a tranche of term deposits (with different interest rates, according to the time-span of their maturity), one could have a similar tranche of  government infrastructure bonds. The financial institutions would act as intermediaries in several respects. In particular, they would acquire these bonds from the Treasury, and would make a profit from the interest margins (difference between interest received from Treasury and interest paid out to investors). As with term deposits, the risk would be correlated with the date of maturity. The big difference being that (a) these investments necessarily would be directed to something productive and useful to the wider community, and (b) there would be little or no danger that the funds would be frozen by the financial intermediary and unused.

John Hermann

John, regarding infrastructure bonds, the US government does not issue such bonds as far as I know.  Infrastructure bonds are issued by state and local governments and are referred to as municipal bonds.  Their earnings are normally free of Federal income tax as well as state income taxes within the states issuing them. 

The US government does create "trust funds" to cover various national infrastructure programs, funded by special fees, but the spending is all paid out of the general fund without distinction.  The so-called trust funds are basically only bookkeeping records.  The purpose of the trusts can be altered at any time by Congress since the funds belong to the Federal government just as though they were ordinary income tax receipts.  The Federal government can and does operate with increasing debt in the long run.  However state and local governments must balance their books on average since in principle they must service their debts out of tax revenues only.

William

[SteveH]

William, I don't really have a good understanding of how Mosler's ELR
proposal would work in practice. On the face of it, it seems like a
good idea to maximise employment in a countercyclical fashion,
reducing transfer payments, and maintaining workforce skills. But
doubtless, there would be unintended consequences of such a program. I
do think the social consequences of large numbers of unemployed people
is sufficient that we could probably tolerate a little inflation as a
trade-off, if this turns out to be the case.

I don't know that the ELR program would necessarily compete with
private sector employment, provided the wage paid was low enough
relative to similar private sector pay, but high enough to entice
people out of the alternative of welfare dependency. I gather that the
proposal is that the kind of jobs on offer would be those that would
likely not attract competing employment prospects within the private
sector.

Suffice to say, I'm agnostic on his proposal, and I don't really feel
qualified to offer a firm opinion regarding how successful it would
be. But it does appear superficially to have some merits. I need to
learn more about it to come to any firm conclusions.

[Bill Moldestad]

William, sorry again, I noticed that in my last reply, I can now read
your entire response. So, please disregard my request for you to
repost. Vale. Bill.

On Nov 13, 9:05 pm, Bill Moldestad <bill.ve...@gmail.com> wrote:
> William,  sorry, but I'm having a hard time reading your entire
> comments.  They're scrolling off the screen again.  Would you please
> be so kind as to repost?  Thanks,  BIll.
>
> On Nov 8, 11:32 am, William Hummel <wfhum...@ca.rr.com> wrote:
>
>
>
> > Bill Moldestad wrote:Could someone explain to me how Mosler's 5th point works? Such as, when the government is not able to collect sufficient tax revenue to meet its current outlays, then would it simply require that the Federal Reserve create and put the needed funds into the Treasury's Federal Reserve account? And are these newly created funds the excess reserve balances mentioned?I'm not sure how Mosler would implement the 5th proposed item.  Since the Treasury can't create base money itself, it seems that the Fed would simply pay for all deficit spending by crediting the payee's banks with Fed funds.  That's essentially what crediting the Treasury's account would do.  With the deficit currently running around 1.5 trillion and probably continuing for several years, it's hard to imagine how such a huge supply of excess reserves would be used.   And regarding the 4th point, I have to agree Jim that this is confusing to me too. Technically, isn't the Fed targeting the Fed Funds rate between 0 to 0.25%? I guess whatever the rate is, is a trivial point, instead, what scares me is how this would effectively make the Federal Reserve no longer the overseer of monetary policy. After all, the way the Federal Reserve controls short term rates and influences long term rates now is by targeting a specific Fed Funds Rate, and managing reserve balances to try to meet this ever changing goal. If you were to effectively get rid of this goal, that is make the Fed Funds rate zero, forever, then what the heck would be the function of the Federal Reserve, other than to provide banking services and loans to any member banks at 0%. Am I to understand Mosler's proposal to be advocating putting our monetary policy entirely in the hands of the private banking system? Mosler doesn't provide enough detail in his proposal to make a coherent picture of how the system would work. Evidently the Fed would depend on administrative control of bank lending rather than interest rate control.  That would make it much more difficult to manage because the rules are subject to interpretation by bank lawyers with differing views. On Nov 7, 10:20 am, William Hummel<wfhum...@ca.rr.com>wrote:Warren Mosler posted a proposal, dated Oct 11, 2009, for changes to the US financial system.  Taken all together, they constitute a radical revision to the current system.  The proposal can be seen athttp://mosler2012.com/wp-content/uploads/2009/03/toronto.pdf. Warren is an original thinker, and I have great respect for his views.  I don't agree with some of them but they are all food for thought.  Here are a few of his proposals:1. Banks should only be allowed to lend directly to borrowers, and then service and keep those loans on their own balance sheets. 2. Banks should not be allowed to acceptfinancial assetsas collateral for loans 3. The Fed should lend unsecured to member banks, and in unlimited quantities at its target Fed funds rate, by simply trading in the Fed funds market. 4. The current zero interest rate policy should be made permanent. This minimizes cost pressures on output, including investment, and thereby helps to stabilize prices. It also minimizes rentier incomes. 5. Cease all issuance of Treasury securities. Instead any deficit spending would accumulate as excess reserve balances at the Fed. For the current recession, Mosler proposes: 1. A full payroll tax holiday where the Treasury makes all the contributions for employees and employers. 2. Distribute $150 billion of revenue sharing to the State governments on a per capita basis. 3. Have the Federal government fund $8/hr full time jobs for anyone willing and able to work, that includes health care benefits.

[William Hummel]

Bill Moldestad wrote:

William,  sorry, but I'm having a hard time reading your entire
comments.  They're scrolling off the screen again.  Would you please
be so kind as to repost?  Thanks,  BIll.

Bill, the text you retain when you reply to a message is all combined into  one big paragraph, which makes it very difficult to dissect into messages by individual authors.  Does anyone else see the same effect in Bill's replies?  If so, I suspect the problem is on your end. 

Here is a repost of my message:

[Bill Moldestad]

William, Thanks for replying, it's much easier to read your comments
now.

I'm not sure what I'm doing wrong, if anything. As previously
mentioned, I check this forum via a web browser, instead of email.
Web browser IE, Windows XP, and Safari, Mac OS X. I would guess I'm
not the only one having problems occasionally. At any rate, I
appreciate your patience. Bill.

On Nov 13, 9:19 pm, William Hummel <wfhum...@ca.rr.com> wrote:
> Bill Moldestad wrote:William, sorry, but I'm having a hard time reading your entire comments. They're scrolling off the screen again. Would you please be so kind as to repost? Thanks, BIll.Bill, the text youretainwhen you reply to a message is all combined into  one big paragraph, which makes it very difficult to dissect into messages by individual authors.  Does anyone else see the same effect in Bill's replies?  If so, I suspect the problem is on your end. 

> Here is a repost of my message:

> Bill Moldestad wrote:Could someone explain to me how Mosler's 5th point works? Such as, when the government is not able to collect sufficient tax revenue to meet its current outlays, then would it simply require that the Federal Reserve create and put the needed funds into the Treasury's Federal Reserve account? And are these newly created funds the excess reserve balances mentioned?I'm not sure how Mosler would implement the 5th proposed item.  Since the Treasury can't create base money itself, it seems that the Fed would simply pay for all deficit spending by crediting the payee's banks with Fed funds.  That's essentially what crediting the Treasury's account would do.  With the deficit currently running around 1.5 trillion and probably continuing for several years, it's hard to imagine how such a huge supply of excess reserves would be used.   And regarding the 4th point, I have to agree Jim that this is confusing to me too. Technically, isn't the Fed targeting the Fed Funds rate between 0 to 0.25%? I guess whatever the rate is, is a trivial point, instead, what scares me is how this would effectively make the Federal Reserve no longer the overseer of monetary policy. After all, the way the Federal Reserve controls short term rates and influences long term rates now is by targeting a specific Fed Funds Rate, and managing reserve balances to try to meet this ever changing goal. If you were to effectively get rid of this goal, that is make the Fed Funds rate zero, forever, then what the heck would be the function of the Federal Reserve, other than to provide banking services and loans to any member banks at 0%. Am I to understand Mosler's proposal to be advocating putting our monetary policy entirely in the hands of the private banking system? Mosler doesn't provide enough detail in his proposal to make a coherent picture of how the system would work. Evidently the Fed would depend on administrative control of bank lending rather than interest rate control.  That would make it much more difficult to manage because the rules are subject to interpretation by bank lawyers with differing views.

[Bill Moldestad]

William, you seem to have a dim view of regulators. You seem to see
regulatory "capture" as the norm, rather than the exception.

Regulation has failed recently, mainly because the legislators removed
the guts of much of it, and the people running the remaining ones
didn't believe in regulation—such as Greenspan. Another problem was
that it was set up in a stupid way, for instance, the credit raters
were paid by the institutions that they were rating, which created a
huge conflict of interest.

I don't know enough about the specifics to make any worthwhile
suggestions on how to set up a workable system of regulation. But I
know that, if the right goals are kept in mind, and if people are
chosen who will actually be committed to the process, it can't be that
hard to set it up in a way that will ensure competent and independent
regulation, and hence avoid regulatory "capture". Bill.

On Nov 8, 11:13 am, William Hummel <wfhum...@ca.rr.com> wrote:
> SteveH wrote:I don't think I'm misrepresenting Mosler, but someone correct me if I'm wrong: Regarding Mosler's 5th point, his point is that government spending precedes government borrowing. Government spending causes reserves to accumulate within the banking system, which are then "borrowed back" or taxed in order to enable the Fed to maintain a non-zero Fed Funds rate, and to control aggregate demand. Any addition (via Fed purchasing of gov debt) to treasury balances at the Fed only becomes a reserve addition when the balance is actually spent by the government. He's just pointing out the operational reality that government spending creates the funds with which the public "lends" to the government. He would deny that the traditional government borrowing constraint is relevant to a flexible exchange rate, non-convertible fiat regime where government borrowing is discretionary. He sees the requirement that government borrow to fund it's deficit as placing an artificial, and not necessarily economically constructive, constraint on the power of government. He also sees monetary policy as a blunt and often ineffective tool for economic management, and believes that fiscal policy could play a much greater and more effective role, if it were allowed to. I think he would use fiscal policy to control inflationary pressures, rather than monetary policy. As far as I can tell, he sees no distinction between paying interest on government debt, and paying interest on reserves. I disagree with this, as one is a risk free subsidy to bondholders in general, while the other is a risk free subsidy to banks. I'm not sure about zero interest either. I'm yet to be convinced that this would not stoke destructive asset bubbles.Steve, I think you have represented Mosler's correctly.  I agree with your comments about the distinction between paying interest on government debt versus paying interest on reserves.   I am puzzled by Mosler's proposal to set the Fed funds rate at zero permanently.  The only way I can see that working is with tight rules on bank lending, the type and amount, as the means of controlling the general level of asset prices.  That may be what Mosler is proposing.

[mark...@aol.com]

Hi William,

To throw in my two cents on Mosler, I agree with most of his work. I however would increase the gas tax incrementally over the next 3 years to at least $3 per gallon. The large tax cut to the middle class (payroll tax) may drive energy demand way up allowing OPEC/speculators to benefit the most. Over a 3 year period would allow consumers to adjust and conservation efforts will keep OPEC/speculators out of the driver seat. If you recall the tax rebate a couple years ago was quickly followed by a sharp spike in oil prices. Can't let that happen again.

I also think interest rates should be in the 3-4% range. Those people who rely on interest income have to adjust with greater net savings. In other words a higher govt deficit.

 

Mark

-----Original Message-----
From: William Hummel <wfhu...@ca.rr.com>
To: understan...@googlegroups.com
Sent: Tue, Nov 10, 2009 4:42 pm
Subject: Re: Mosler proposals for the current recession, #1

[William Hummel]

mark...@aol.com wrote:

Hi William,

To throw in my two cents on Mosler, I agree with most of his work. I however would increase the gas tax incrementally over the next 3 years to at least $3 per gallon. The large tax cut to the middle class (payroll tax) may drive energy demand way up allowing OPEC/speculators to benefit the most. Over a 3 year period would allow consumers to adjust and conservation efforts will keep OPEC/speculators out of the driver seat. If you recall the tax rebate a couple years ago was quickly followed by a sharp spike in oil prices. Can't let that happen again.

I also think interest rates should be in the 3-4% range. Those people who rely on interest income have to adjust with greater net savings. In other words a higher govt deficit.

 

Mark

Mark,

Are you saying that you agree with Mosler's latest proposals on financial reform which he posted on http://mosler2012.com/wp-content/uploads/2009/03/toronto.pdf?

Regarding his proposed payroll tax holiday, that is a temporary measure as I understand it.  I doubt that it would have much impact on oil prices.  The spike in oil prices a couple of years ago could have been due to other factors than the tax rebate -- like Wall Street gamesmanship, thinking of the games Enron played in electric power prices.

In your reference to interest rates, I assume you are talking about the Fed funds rate rather than the bank prime rate.  Banks typically set their prime rate 3 percentage points above the Fed funds rate, and their markups on retail rates are much higher than that.  The Fed has said it will not raise the Fed funds rate from its current value (less than 0.25%) for some time yet.  In truth it can't raise the FFR until it has recaptured most of the excess reserves it created with its various emergency programs.  When it has done that, I would expect the Fed to increase the Fed funds target rate to the 3 to 4 % range rather quickly.   In my view, the FFR should be around 4% under normal conditions.  That's quite different from Mosler's proposed 0%.

How do you conclude there will be higher government deficit resulting from greater net savings in the private sector?

William

[William Hummel]

Bill Moldestad wrote:
> William, you seem to have a dim view of regulators. You seem to see
> regulatory "capture" as the norm, rather than the exception.
>

The revolving door problem has become serious in recent years in spite
of laws that are supposed to prevent it.

William

[jim blair]

Hi,

 

I'll reply to two of your recent comments.

 

My prediction is that the most recent recession will go into the record books as having ended during the summer of 2009, or maybe this fall at the latest.  We won't know if I am correct for about a year.  The "Two quarters" rule is an approximation; the "official decision" is made by a committee that considers both the GDP but also other factors (also important as you correctly point out).  But when considering "the US economy", macro data is used to deal with the overall economy, not anecdotal stories about particular individuals, industries, sectors or regions.  And "the economy" in the US (or any developed country) is constantly changing.  Entire industries disappear as technology changes.  Their loss of jobs does not mean that the US is in a "recession":  Recession is a technical term that describes the overall economy and should not be used by people who don't know what it means.

 

I want to return to the point of my original comment on Mosler's proposal #1: the "payroll tax holiday" (meaning I assume, FICA).  Why that and not increased funding for the EITC?   A subsidy to FICA gives money ONLY to those currently employed, and more to those who earn more.  Does it make any sense, either from the standpoint of the economy or of fairness for the government to give twice as much to someone who makes $100,000 a year than to someone who makes $50,000?  Or 4 times as much as to the worker who makes $25,000?   Anyone want to defend that?

 

The EITC gives more too those who earn less.  But is still restricted to those have a job or otherwise earn income.  If we want a more radical proposal, but one that still does not require any new department, but could be implemented through existing government institutions (namely the IRS), I propose the original Milton Friedman "negative income tax". It would provide a minimum floor income for everyone, give the most to those with the lowest income,  maintain the incentive to earn more for people at every income level,  and would cost little or nothing to administer.

 

As for why we seem to be looking at a "jobless recovery", why has no one that I have seen on TV or in the press, pointed out the 3 recent increases in the minimum wage in 2007, 8 and 9, and the 50 year record of studies linking minimum wage increases with reduced employment, and ask if there could be a connection?

 

And finally:

"Making things in America instead of buying things made in other countries would be a real start to a jobs oriented economic recovery." 

 

I'm not sure what you are getting at here, but cutting off foreign trade would be a disaster today just as the Smoot-Hawley tariff was for the 1930's.

 

 

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Monday, November 09, 2009 6:04 PM

Subject: Re: Mosler proposals for the current recession, #1

Hi Jim,  Two quarters of negative growth, as measured by GDP, is the usual definition of recession given by orthodox (neoclassical) economists. However I disagree with the orthodoxy on several matters, including the value or relevance of GDP as a measure of economic health. One reason being that GDP uses a very narrow concept of economic development and economic well being, based on a concept of "growth" which counts items having a negative impact on society and the environment as positives. Moreover I regard the level of employment as a very important indicator of economic health, whether it is lagged in regard to other indicators or not.   John Hermann.  ....

 

My Opinion: For whom is the recession over?  Stock markets are up and big bonuses are back on Wall Street. But what does that mean for people whose backs are against the wall, don't have a market account or a 401K with market investments, have poor or no health insurance and foreclosure notices on the door?  For a decade we have had a consumer economy with credit as the primary currency.  When credit dries up, when we do not "shop 'til we drop," when "recreational shopping" ends, when "retail therapy" provides more pain than pleasure, when credit card interest is 24%, when refi funds dry up for mortgaes, consumption decreases, companies close or lay off workers, and we see what happens when we are forced to live mostly within our take home pay or unemployment benefits..  The economy and employment rates we enjoyed could not be sustained at the level of debt we were racking up and probably will not return to 2007 levels for a long time.  Making things in America instead of buying things made in other countries would be a real start to a jobs oriented economic recovery.

At 07:37 AM 10/11/2009, you wrote:

[mark...@aol.com]

Hi William,

Addressing the FFR first, let's say I wanted an income of X dollars from my investments in good old US savings bonds for my retirement. If the yield on Treasuries is 6% I will need a principle of Y dollars. If the yield is only 3%
I will need two times Y dollar amount. In other words I will need to save twice as much (recall the paradox of thrift) and the govt will have to deficit spend to make up the difference. I believe this would apply (for the most part) to the public as a whole.

As for the gas tax I would replace the payroll tax with the gas tax. If Americans are given an income boost equivalent to the payroll tax, energy conservation will go out the window. OPEC/speculators are not stupid. They will pounce on this easy money. Like Mosler says, taxes do not serve the purpose of revenue for the govt to spend. Taxes serve the purpose of removing demand from the private sector. From my viewpoint the only thing the govt need to keep a lid on demand (right now) is energy. Give the tax cut so Americans can afford new cars, HDTVs, etc to get the eonomy rolling, but don't let OPEC get it!

-----Original Message-----
From: William Hummel <wfhu...@ca.rr.com>
To: understan...@googlegroups.com
Sent: Sun, Nov 15, 2009 12:31 pm
Subject: Re: Mosler proposals for the current recession, #1

[William Hummel]

mark...@aol.com wrote:

Hi William,

Addressing the FFR first, let's say I wanted an income of X dollars from my investments in good old US savings bonds for my retirement. If the yield on Treasuries is 6% I will need a principle of Y dollars. If the yield is only 3%.  I will need two times Y dollar amount. In other words I will need to save twice as much (recall the paradox of thrift) and the govt will have to deficit spend to make up the difference. I believe this would apply (for the most part) to the public as a whole.

Mark,

Individual saving means spending less on consumption than available from one's disposable income.  What an individual saves can be deposited in a bank, put into a pension fund, used to buy a business, pay down debt, or kept under the mattress.  The common element is the claim on assets that can be used to pay for future consumption.  If there is a return on the saving in the form of interest, dividend, rent, or capital gain, there can be a net gain in individual saving, and thus in individual wealth.

If an individual decides to increase saving by consuming less, his cutback in spending necessarily means a reduction in income to others.  They in turn might cut their consumption to match the loss of income, so there will usually be a net reduction in saving.  The net saving of everybody else may decrease more than the original increase, which would result in a decrease in aggregate saving.

Aggregate saving does not increase as a result of individuals acquiring pieces of paper like dollar bills or stock and bond certificates.  That merely swaps one type of financial asset for another without affecting the total.  Aggregate saving occurs when the nation acquires real domestic assets, such as new housing, new machinery, new factories and offices, additions to firms' inventory of goods, or new claims on assets overseas.  In other words net savings arises out of investment, and that is what provides for growth in aggregate wealth.

As for the gas tax I would replace the payroll tax with the gas tax. If Americans are given an income boost equivalent to the payroll tax, energy conservation will go out the window. OPEC/speculators are not stupid. They will pounce on this easy money. Like Mosler says, taxes do not serve the purpose of revenue for the govt to spend. Taxes serve the purpose of removing demand from the private sector. From my viewpoint the only thing the govt need to keep a lid on demand (right now) is energy. Give the tax cut so Americans can afford new cars, HDTVs, etc to get the eonomy rolling, but don't let OPEC get it!

Well I disagree with Mosler here.  When he asserts that the purpose of taxes is to remove demand from the private sector, he implicitly consolidates the functions of the Fed and Treasury into what he calls the "government".  But the Treasury cannot spend a dollar that was not previously created by the Fed and acquired through taxes or the sale of its debt securities to the public.  The only exception was in World War II when the Treasury sold some of its debt securities directly to the Fed.   In normal times, the Treasury does indeed need tax revenues in order to spend unless it can sell an ever increasing amount of debt without damage to the economy.

What Mosler's thesis implies is that the Fed pays for the Treasury's deficit spending.  But if it did so, that would flood the banking system with reserves, drive the Fed funds rate to zero, create excessive credit, and overheat economy.  Asset prices would balloon followed later by consumer prices.  Inflation would eventually wreck the economy.  What he seems to ignore is that the economy runs mainly on bank money, not on base money.

William

[jim blair]

Hi,

 

Reading over my post, it sounds more snooty than I intended.  By "Recession is a technical term that describes the overall economy and should not be used by people who don't know what it means"  I did not mean you.  You clearly have a better idea of the meaning than most that I exchange with.  I did not know the technical definition until recently, and after a 2 semester econ course and much self study, I still thought the "2 quarters of GDP decline" was the definition until about a decade ago.

 

https://mywebspace.wisc.edu/jeblair/web/reces.txt

 

Let me give a personal illustration.  I know intellectually that the 1970's were bad times for the US with high inflation and unemployment (stagflation).  And the 1980's were good times.  But for me personally, the 70's were much better.  I had a job I loved and things were great in my personal life.  I had a high mileage car and the gas shortages, lines and high prices did not bother me. My salary was low, but money was not important to me.

 

During the 80's my good job teaching ended when Milton College closed and I moved though 3 jobs that I didn't like  and I was unemployed for close to a year.  For other personal reasons, the 80's were bad for me.   But I know that the overall state of the economy does not apply to individuals (like me) but is a gross overall  average.  Even during the Great Depression of the 1930's some people were doing very well.

----- Original Message -----

From: jim blair

To: understan...@googlegroups.com

Sent: Monday, November 16, 2009 8:10 AM

Subject: Re: Mosler proposals for the current recession, #1

Hi,

 

I'll reply to two of your recent comments.

 

My prediction is that the most recent recession will go into the record books as having ended during the summer of 2009, or maybe this fall at the latest.  We won't know if I am correct for about a year.  The "Two quarters" rule is an approximation; the "official decision" is made by a committee that considers both the GDP but also other factors (also important as you correctly point out).  But when considering "the US economy", macro data is used to deal with the overall economy, not anecdotal stories about particular individuals, industries, sectors or regions.  And "the economy" in the US (or any developed country) is constantly changing.  Entire industries disappear as technology changes.  Their loss of jobs does not mean that the US is in a "recession":  Recession is a technical term that describes the overall economy and should not be used by people who don't know what it means.

 

I want to return to the point of my original comment on Mosler's proposal #1: the "payroll tax holiday" (meaning I assume, FICA).  Why that and not increased funding for the EITC?   A subsidy to FICA gives money ONLY to those currently employed, and more to those who earn more.  Does it make any sense, either from the standpoint of the economy or of fairness for the government to give twice as much to someone who makes $100,000 a year than to someone who makes $50,000?  Or 4 times as much as to the worker who makes $25,000?   Anyone want to defend that?

 

The EITC gives more too those who earn less.  But is still restricted to those have a job or otherwise earn income.  If we want a more radical proposal, but one that still does not require any new department, but could be implemented through existing government institutions (namely the IRS), I propose the original Milton Friedman "negative income tax". It would provide a minimum floor income for everyone, give the most to those with the lowest income,  maintain the incentive to earn more for people at every income level,  and would cost little or nothing to administer.

 

As for why we seem to be looking at a "jobless recovery", why has no one that I have seen on TV or in the press, pointed out the 3 recent increases in the minimum wage in 2007, 8 and 9, and the 50 year record of studies linking minimum wage increases with reduced employment, and ask if there could be a connection?

 

And finally:

"Making things in America instead of buying things made in other countries would be a real start to a jobs oriented economic recovery." 

 

I'm not sure what you are getting at here, but cutting off foreign trade would be a disaster today just as the Smoot-Hawley tariff was for the 1930's.

 

 

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Monday, November 09, 2009 6:04 PM

Subject: Re: Mosler proposals for the current recession, #1

Hi Jim,  Two quarters of negative growth, as measured by GDP, is the usual definition of recession given by orthodox (neoclassical) economists. However I disagree with the orthodoxy on several matters, including the value or relevance of GDP as a measure of economic health. One reason being that GDP uses a very narrow concept of economic development and economic well being, based on a concept of "growth" which counts items having a negative impact on society and the environment as positives. Moreover I regard the level of employment as a very important indicator of economic health, whether it is lagged in regard to other indicators or not.   John Hermann.  ....

 

My Opinion: For whom is the recession over?  Stock markets are up and big bonuses are back on Wall Street. But what does that mean for people whose backs are against the wall, don't have a market account or a 401K with market investments, have poor or no health insurance and foreclosure notices on the door?  For a decade we have had a consumer economy with credit as the primary currency.  When credit dries up, when we do not "shop 'til we drop," when "recreational shopping" ends, when "retail therapy" provides more pain than pleasure, when credit card interest is 24%, when refi funds dry up for mortgaes, consumption decreases, companies close or lay off workers, and we see what happens when we are forced to live mostly within our take home pay or unemployment benefits..  The economy and employment rates we enjoyed could not be sustained at the level of debt we were racking up and probably will not return to 2007 levels for a long time.  Making things in America instead of buying things made in other countries would be a real start to a jobs oriented economic recovery.



At 07:37 AM 10/11/2009, you wrote:

Hi,

Several answers. Resessions are not defined by the unemployment rate, but more closely by the GDP.  I say that by next year the record will show that this recession ended during the summer of 2009.

Unemployment rate is a laging indicator, and typically continues to rise after a recession ends

And maybe most important, the federal minimum wage was increased in each of the last 3 years (2007,8 &9).  In the past an effort was made to increase it during an expansion, not when a recession was beginning.

----- Original Message -----

From: John Hermann

To: understan...@googlegroups.com

Sent: Monday, November 09, 2009 1:49 PM

Subject: Re: Mosler proposals for the current recession, #1

[Bill Moldestad]

William,

So, you’re point is, that even laws can’t stop regulation from short
circuiting itself?

Look, there’s a lot of specific details that are wrong with the
regulating system, but the main thing is that they drew back a lot of
the regulations that they put in place after the last crisis—the Great
Depression. They had rules against banks basically betting. And they
put them in place because the betting is what screwed up the ‘30s.
They put rules in place where banks couldn’t do that. And then, after
the years went by, people lost their awareness of what can go wrong,
and they drew back the regulations, and the industry was saying:
“We’ll take care of ourselves. The market will take care of it!”
And you’ve got people in place like Greenspan who believed them, who
believed that the market can regulate itself. Can you say: sucker?
They didn’t learn lessons from history, every time the regulations are
off, things go screwy. This is obvious. The SEC runs their board as
if they’re toadies of the stinking financial industry. The people who
were regulating some of the financial stuff were lawyers, they didn’t
understand accounting principles. Stinking lawyers! (For example,
the SEC Inspector General is from the Peace Corps, and that goes for
the Deputy Inspector General too.) And they’re trying to figure out
derivatives. I’m not sure exactly what went wrong with the specifics,
but I know that the Republicans who were in charge of appointing these
people didn’t believe in regulations. Think about it, when you’ve got
people who don’t believe in the process, they’re not going to put a
lot of thought into making it work efficiently. If somebody was
actually trying to make regulations work, I’m sure you could find
procedures that would actually carry it out. For starters, make sure
there’s no conflicts of interest. Make sure you have some check on
their competency. There’s simple ways you can do it. When you don’t
believe in it, you don’t take the steps that any reasonable person
would. I don’t know about you, but I see an obvious conflict of
interest when the SEC and FDIC are completely dependent for funding on
the financial industry that they’re regulating. And what makes this
whole thing even more stupid, is that the credit rating agencies are
in this position too. Geez, what a huge conflict of interest huh?

Bill.