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Friday, October 7, 2011

Revisiting Bank Regulation

Hey Barry:

One of the biggest problems we face today and one which contributes to unemployment, destroys jobs and generally is bad for the country is the current state of bank regulation.

Bankers caused this mess around the world. So far we have not developed a way to prevent further problems caused by banks. The Dodd-Frank bill is just a start toward effective regulation, but even it has been gutted to impotence by our corrupt legislature.

I will outline the McKeever Method of regulating banks below.

If put in place, our world would be better for all.

You can read a paper I wrote on bank regulation in 2009 here: www.mkeever.com/bank_regulation_usa.doc

Here's a simplistic view of how bank structure would work in a McKeever world:

COMMERCIAL BANKS

Commercial banks can lend money for businesses, houses, commercial property and cars. They may not be the beneficial owner of those assets, I think that is the correct term. They cannot sell stocks, insurance or any other products.

They may own real estate that they occupy only - no investment property.

Commercial banks can receive money from the public for demand deposits, CD's, time deposits and any other instrument backed by the FDIC. They may not receive money from the sale of any asset unless they sell it as result of foreclosure.

Commercial banks will be monitored closely by the FED for good financial structure, management, loan portfolio soundness, etc.

Failing commercial banks, since they possess part of the country's money supply, should be wound down slowly and absorbed where possible, after making depositors whole.

INVESTMENT BANKS

Investment banks can buy shares of stock in any company or any asset they choose. They may not borrow funds from the FED.

Any security or product sold by an investment bank must be approved by the SEC - there are NO black boxes. All is disclosed.

Investment banks can go bankrupt regardless of size.

Of course, making these changes is difficult and politically charged. And, even if all these were implemented tomorrow, they would not solve our current mess, but the changes would help prevent future problems, IMHO.

Your pal,

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