Reply #41: yes...by buying bonds [View All]

[anigbrowl]

I don't disagree with you that bankers are greedy and will take advantage of whatever favorable terms they can get. However, I don't think there's anything fundamentally wrong with the central (not commercial or investment) banking model as practiced here - ie a central bank separate from the treasury, with whom large commercial banks maintain funds on deposit. It's imperfect in many ways, but countries where the central bank is under direct control of the treasury seem to be subject to even greater levels of fiscal instability.

I don't know any country where the latter works really well, unless you count tiny countries like Andorra or such which have good balance sheets but unusual economies that don't really scale to any feasible size (Andorra is a tiny tiny country between France and Spain, which makes 80% of its income from tourism - it is very financially stable but the whole country is only 75,000 people. Some libertarian I was talking to recently suggested it as a better model than France, just as some folks on the left look at one good aspect of Cuba and ignore the multiple problems that would occur if you tried to scale up the Cuban model to the size of the US. This isn't directed at you, particularly).

I don't know how you got the idea that I was saying they'd borne great risk by assuming the role of central bankers. I was just pointing out that some of the most publicly-approved banking activities are actually among the riskiest and most in need of hedging. Iceland's recent encounter with big finance is educational in that regard (good solid economy to begin with, then the Icelanders convince themselves that they're financial gods, can do no wrong, and spend themselves into oblivion).