Feedback (was Re: financial times article)

["Harry Veeder" <eo200@xxxxxxxxxxxxxxxxxxx>]

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>From: " ë׬?? Henry C.K.Liu  ?í?lóî" <hliu@xxxxxxxxxxxxxx>
>To: Kazuhiro Kurose <kurose@xxxxxxxxxxxxxxxxxxxxxx>
>Subject: Re: financial times article
>Date: Sat, Sep 23, 2000, 3:37 am
>

>Greenspan's speech deals with much more pedestrian issues than a quest for
>a new theory of money, Post-Keynesian or
>otherwise.  He is mainly concerned with freeing the banks from residual New
>Deal era restrictions despite the Financial
>Modernization Act which essentially turns banks into all service financial
>institutions.  In this new era of unregulated
>financial markets, these reincarnated banks continue to keep one
>fundamental advantage: of being able to lean on the Fed as
>lender of last resort. This advantage is fueling the banks' current
>acquisition fever of all sorts of financial entities.
>This advantage was granted to banks precisely because of a recognition that
>the market was not an effectively supervisory
>agent, thus the rationale for the creation of the Federal Reserve System.
>Now Greenspan is arguing that the market is the
>sole de facto regulator of the banking industry.  He does recognize that
>counterparty risk is a critical problem, as the
>collapse of LTCM illustrated.  The fact is that derivatives traded over the
>counter have overshadowed traditional banking
>activities for money center banks.  Thus the issue is not even the health
>of a bank's loan portfolio or the creditworthiness
>of its borrowers.  The issue is a bank's counterparty risk exposure from
>structured finance.  The Fed's role as lender of
>last resort provides only too flimsy a safety net for the heavy weight
>structured finance risk exposure.  Yet Greenspan does
>not want to do anything that stands in the way of  providing benefits to
>society through the willingness of banks to take
>risks and from their use of a relatively high degree of financial leverage.
>That is Greenspan's message.  He is essentially
>saying if you can't be good, at least be careful.

If the Fed is owned by the America People, then the Fed as lender of last
resort is lending The People's money rather than Greenspan & Company's
money.Therefore  a signifcant fraction (if not all) of the interest payments
ought to be distributed among the America People. The market place is
not getting the vital FEEDBACK it needs due to the inappropriate channeling
of interest payments into the Fed (or wherever they currently go.)

This depends on a model of a Monetary Economy as two fundamental interacting
entities -- The People and The Market Place. The Government ensures
effective monetary communication between the two.

In fact I believe this applies to the entire globe, so that
all the interest money going into every CB ought to be pooled
and shared among the World's People.

What do you think of this as an idea for global financial reform?

Harry Veeder