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“A banking system we can trust” | Forbes

An interesting proposal outlined in Forbes by Laurence J. Kotlikoff and Edward Leamer.

The proposal is to eliminate bank failures by managing lending at banks through funds provided by mutual funds.  This would place all the risk with the holders of the funds (investor customers who lend money) and gain the risk advantages of a Mutual Fund.  Loans would be funded when the Mutual Fund provided the money.

I find this particularly intriguing because this is basically the P2P lending model as it is now playing out, with sophisticated investors providing the funding directly to borrowers – P2P Lenders providing the platform and lending system to make it happen.  Pertuity Direct in fact use a Fund as their lending supply source.

Here is the link to Forbes.  Story courtesy of icontract – (thanks Nishad).

Written by Colin Henderson

May 6, 2009 at 08:31

2 Responses

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  1. I suppose that’s a natural end-point if banks aren’t allowed to carry risky assets on their balance sheets.

    I don’t see how it’s possible for their system to finance the “wage fund”. The gap between working being done, and goods being on sale.

    “All mutual funds would break the buck with one exception: cash mutual funds. These funds would strictly hold cash …”

    So where does that cash come from ?? If bank’s can’t create money against inventories and goods, who does? And under what rules?

    Thomas Barker

    May 7, 2009 at 20:14

  2. @Thomas …. I had the similar mental model problems, and thats why I leapt on the PD model.

    Not sure about what you mean by the ‘wage fund’? In my simple brain, in this case there is no work being done … there is money being lent at an interest rate. What am I missing?

    bankwatch

    May 9, 2009 at 15:32


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