SPECIAL GUEST : Professor Laurence Kotlikoff, Ph.D. is a William Warren
FairField Professor at Boston University, a Professor of Economics at Boston
University, a Fellow of the American Academy of Arts and Sciences, a Research
Associate of the National Bureau of Economic Research, a Fellow of the Econometric
Society, a former Senior Economist, and on President Reagan's Council of Economic
Advisers.
Professor Laurence Kotlikoff believes the current banking system needs to
be restructured into "Limited Purpose Banking to remove excess leverage and
opacity; that the bureaucrats are having a field day with new ineffective regulations
and the US government is financially bankrupt when accounted for correctly.
Financial Repression
To Professor Kotlikoff the Financial System needs to be understood as a Public
Good. It is a market place which needs coordination and banks & financial
intermediaries are there to facilitate the operation and management of that
public good. Regulators are there to keep the public good working. The question
is what kind of regulation do we need that will ensure the financial system
keeps working.
"Today the system is in bigger danger than 2008 because fundamentally the
banks are being allowed to operate with dramatically larger leverage than
would keep things safe!"
Additionally, the banks are being allowed to operate with full opacity. They
don't have to tell what they own in terms of assets or liabilities. Therefore
depositors don't know the risk they are taking which can lead to bank runs
which we saw in 2008 where banks didn't trust other banks.
"We are all set up to see this happen again because of all this leverage
and opacity. The system is more fragile!"
The Fix
In his book "Jimmy
Stewart is Dead", Professor Kotlikoff talked about shifting from a "Faith
Based" banking system to a "Show Me!" banking system where financial intermediaries
disclose all the assets they are holding. Instead of borrowing money to invest
in assets we can't see, they would sell shares through equity finance. They
in effect would be equity financed Mutual Funds.
The purpose of "Limited Purpose Banking" which Professor Kotlikoff is proposing
in his book is that all the financial middle men who are running the "public
good" not be allowed to gamble with it. To most people their banking would
be through:
- Cash Mutual Funds - For the Payment System
- Mortgage Mutual Funds - Instead of Fannie Freddie
The leveraged derivative element of the current speculative banking system
would be run in a similar manner to modern parimutuel betting system polls.
Dodd-Frank legislation has not made the system safer and instead sees only
one regulator agency (the "Federal Financial Authority") which oversees disclosures
versus 130 entities in Dodd-Frank!
THE $210 TRILLION FISCAL GAP
Economists like Professor Kotlikoff feel the 'Fiscal Gap' is what we should
be measuring, not one part of it which is the National Debt. The Fiscal Gap
according to the CBO is presently $210T while the National Debt approximates
$13T. We are focused on the $13T but really we need to be focused on is the
$210T.
Over 1200 economists and 17 Nobel Laureates have endorsed a bill that mandates
that the CBO & GAO do 'Fiscal Gap' reporting to look at the big picture..
Information on this bill can be found at www.theinformact.org.
The current shortfall is 10.5% of GDP, each and every year. To offset this
would require a 60% increase in taxes or for a 35% cut of all expenditures
and benefits.
"The US is actually fiscally broke!"
The banks are holding a lot of the governments debt which is unpayable. Governments
that cannot pay their bills print money. Eventually this inevitably leads to
inflation. This will make the bonds worth less money which would highly likely
put the banking system underwater.
SUPPORT
Video: FINANCIAL REPRESSION AUTHORITY - w/ Laurence Kotlikoff
