(2010-10-31) Lewis Stimulus Recommendation

Nathan Lewis gives his Economic Stimulus recommendation (no, not QE2). Banking system meltdown and other "systemic" factors are a real risk. The proper banking solution would be a debt restructuring with government oversight, probably combined with what amounts to a Super Glass Steagall, to once again separate regular banking from investment banking, securities trading, derivatives dealing, and everything else that is not simple commercial lending. I say Super Glass Steagall because I think that we should also separate securities brokerage (executing customer orders) and prime brokerage (securities custodianship) from the market-making, derivatives dealing, HFT and proprietary trading, and investment banking of today's broker-dealers. A three-way split... Second, we could help along the natural process of economic self-healing with a big tax reform, something like the 13% Flat Tax that Russia passed in the depths of economic collapse in 2000.

Nov21 update has more detail. The difference between me and the other people discussing this stuff today is that I've been listening to this crap for twenty years in the case of Japan, and the only result has been immense waste, a government that has bankrupted itself, a stagnant economy, and ever-higher taxes to pay off the debt incurred to waste money on nothing... Unable to issue new debt, they must reduce their spending dramatically. The standard bureaucratic respone will be to cut the most important spending first. the actual, important services provided to the taxpaying citizens. Bureaucrats will cut the most egregious waste last, because that is, basically, their bloated pension, their headcount, and the various pork/handouts for which they are getting bribed. Ideally there will be some national leader to counter this natural bureaucratic tendency. As the government cuts the most important government services first, and probably tries to raise taxes, naturally there is civil unrest. This civil unrest is always spun by the media as a backlash against any reduction in government spending. If a government cuts useless waste, bloat, and theft, the only complainers are the bureaucrats and public employees themselves. The general citizen is quite happy. Wouldn't you be happy?

Nov28: more on his "Super Glass Steagall" thinking. Commercial, depository banks are once again segregated from "investment banks.".. Investment banks/broker-dealers are free to live and die on their own. Their own funding (debt) would reflect the risk of failure, and carry a higher interest rate, as it should. Capital limits should apply, however... However, there should be a third class of financial institution, which is in effect a securities depository institution.


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